Tax on digital assets: Impact on NFTs limited for now but industry seeks more clarity

Surabhi | | Updated on: Jun 30, 2022
Industry players point out that NFTs are still at a nascent stage in the country with not too many investors and awareness.

Industry players point out that NFTs are still at a nascent stage in the country with not too many investors and awareness.

1% TDS can be tricky, players said

Sentiments around non-fungible tokens have not been as impacted by the new tax regime, especially the one per cent tax deducted at source, as that for cryptocurrencies.

NFT players believe the new tax regime on virtual digital assets has to some extent dampened the mood but believe it will have limited impact as the industry is still in a nascent stage and there are fewer concerns, unlike that for cryptocurrencies. However, players said that there is need for more clarity on various provisions around the one per cent TDS, which kicks in from July 1.

Polarised views

“Sentiments on the tax for virtual digital assets are on two poles. Some people are very happy that they have been brought into the legally acceptable classes and they do not have to speculate on the legality of these assets. This will bring in a lot of new investors who were hesitant to invest in the state due to the legal turmoil and lack of clarity. On the other hand, there are people who are concerned about the tax rates and it is discouraging them as they made their fortune when it was out of the legal taxable zone,” said Kameshwaran Elangovan, Co-Founder and Chief Operating Officer, GuardianLink.

While welcoming the 1 per cent TDS, he however, noted, “It might sometimes go against the very philosophy on which cryptocurrency was founded but if we have to arrive at a consensus between what is practical and what is ideal, these steps should be taken every now and then.”

‘Waiting for more clarity’

Siddharth Jaiswal, Founder and CEO, Sportzchain said the NFT industry is waiting for more clarity on how to manage the TDS from an end to end basis. “The guidelines are more focussed on crypto assets than NFTs,” he said, noting that NFTs are often given as memorablia and gifts where TDS could be a bit tricky. “If I want to gift an NFT, I can mint any image as an NFT using blockchain technology and transfer it to someone’s wallet. It’s a peer-to-peer transaction with no monetary element attached. I don’t know how TDS would be deducted,” Jaiswal said.

The 30 per cent tax is however, not an irritant, except that there is no set-off against losses, he said.

An NFT is a digital asset that is written in computer code and recorded on a blockchain ledger. A number of Indian celebrities including actors and athletes have launched their own NFT collections for fans. Industry players point out that NFTs are still at a starting stage in the country with not too many investors and awareness. Further, the government and Reserve Bank of India’s concerns is largely reserved for cryptocurrencies and is not so much centred on NFTs, they said.

Published on June 30, 2022
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