What You Need to Know About Crypto and NFT Laws in India

Over the past few months, there has been a lot of talk (and a lot of confusion) surrounding the crypto tax in India. In this article, I will briefly explain all the laws that apply to cryptocurrencies in India.

Before we begin, let’s quickly understand what Non-Fungible Tokens (NFTs) are.

NFTs are digital proof of ownership of an underlying asset such as:

digital art collectibles domain names virtual game items physical assets Cryptos can be divided into six types:

Currencies not backed by fiat currencies, e.g. Bitcoin (BTC), Monero (XMR) NFTs backed by tangible assets Virtual digital assets

Categories one through five are Virtual Digital Assets (VDAs) under Section 2 (47A) of the Income Tax Act.

Some laws that apply to VDAs are:

VDAs fall within the definition of “property” under Section 56 of the Income Tax Act which relates to “income from other sources”.

Many transactions in VDAs incur a 1% withholding tax (TDS) under Section 194S of the Income Tax Act titled “Payment on Transfer of a Virtual Digital Asset”.

The government has issued guidelines explaining when the TDS applies and when it does not. These can be downloaded from here.

The government has also issued an order regarding TDS for transactions other than those taking place on or through an exchange. This can be downloaded from here.

The government has also issued a circular providing certain exemptions for the application of Section 206AB to TDS on VDAs. Section 206AB is titled “Special provision for withholding tax for non-taxfilers” and the circular can be downloaded here.

VDA income is taxed at 30% under Section 115BBH of the Income Tax Act titled “Virtual Digital Asset Income Tax”.

What does not qualify as a VDA?

The government has issued a notice specifying that the following are not considered VDAs:

Gift cards or vouchers Mileage points Loyalty points or loyalty card Subscription to websites or platforms or NFT applications backed by Tangible Assets

According to the Indian government, an NFT will not be considered a VDA if it meets two conditions:

The transfer of the NFT results in the transfer of ownership of an underlying tangible asset.

The transfer of ownership of these underlying tangible assets is legally enforceable. In March, Ritesh Pandey, a parliamentarian from the Bahujan Samaj Party (BSP) expressed his concerns to the Lok Sabha. At the time, Pandey said that this 1% TDS would promote the “red carpet” while killing this booming digital asset class.

The “red carpet” idiom refers to these supposedly excessive and rigid formal rules.

Pandey’s comments had come against the backdrop of an outcry from the Indian crypto community, which is calling on the government to reconsider the tax regime it is pushing the crypto industry into.

Cryptocurrency is an unregulated digital currency, which is not legal tender and is subject to market risk. The information provided in the article is not intended to be and does not constitute financial advice, business advice or any other advice or recommendation of any kind offered or endorsed by NDTV. NDTV shall not be liable for any loss resulting from any investment based on any perceived recommendation, forecast or any other information contained in the article.


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