After cryptos, the taxman could come for your NFTs says a new report

After cryptos, the taxman could come for your NFTs says a new report
The government is working on guidelines to clarify how tax on NFTs would be computedCanva / IANS / Business Insider India
  • The Indian government, earlier this year, brought virtual digital assets (VDA) under the ambit of taxation.
  • At the time, however, there were several aspects that were not clarified, including how NFTs are defined and calculation of the 1% TDS.
  • Now, the taxman is reportedly working on guidelines ahead of the first advance tax due date in June.
The government is reportedly working on defining how non-fungible tokens or NFTs can be taxed. It is likely to include them under the definition of virtual digital assets (VDA) like Bitcoin, Ethereum and other cryptocurrencies.

A report by Business Standard quoting unnamed sources states that the Central Board of Direct Taxes (CBDT) is working on guidelines in this regard. This is to essentially remove any ambiguity about NFTs, which will make it clearer for both tax assessees as well as the tax department to compute and levy taxes.

It is worth noting that the first due date of advance tax payment is inching close – the first instalment falls due on June 15. Assessees are required to estimate their tax liability for the year and then pay 15% of it by June 15.

“There are several key issues requiring clarity on the definition of virtual assets and their implementation. They must be settled before the first advance tax instalment due date to ensure taxpayers are able to accurately calculate their taxes and avoid interest and penalties for shortfall in tax payments,” the report said, quoting an unnamed official.

CBDT guidelines on VDA to shed more light on 1% TDS as well


Apart from just defining NFTs and whether they are covered under VDAs for the purpose of taxation, the taxman is also expected to explain how to calculate the 1% TDS on cryptocurrency transactions.

For context, the Indian government introduced a 1% TDS in its annual budget in February this year, stating that the goal was to track crypto transactions. However, industry players have criticised this move, saying that this will make the crypto market illiquid.

Alternatively, industry players have suggested a 0.01% TDS as this would achieve the goal of tracking crypto transactions without levying an indirect penalty on day traders and crypto investors.

According to the government’s announcement, a 1% TDS is chargeable on each crypto transaction, which makes day trading in crypto rather difficult. While the excess tax collected will be refunded by the government eventually, it locks away capital for no reason whatsoever.

Crypto tax in Budget 2022-23 – a quick recap

The Indian government levied a flat 30% tax on income from all virtual digital assets, including cryptocurrencies and NFTs. To make matters worse, finance minister Nirmala Sitharaman also announced that losses from VDAs will not be allowed to be set off against income from VDAs.

Further, the government also removed the option of taxing crypto gains under the head ‘Capital Gains’, which means even investors who hold crypto assets for a long period of time will have to pay tax at 30%, instead of the lower rates under the capital gains head.


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