The non-fungible tokens (NFTs) community claims that the government is mistreating them by lumping them in the newly announced digital asset tax scheme with cryptocurrencies. NFTs are digital commodities, not cash like cryptocurrency, according to industry members; hence they must be taxed individually.
Because the bulk of Indian NFT purchasers invests primarily between Rs 10,000 and Rs 40,000, the NFT businesses believe that a 30% tax is too excessive for an industry that is still in its infancy.
With the inherent volatility within an asset class, the high tax rate has become an additional source of suffering. For NFT purchasers, the 1% TDS on selling factor will also raise the price.
The marketplaces generate money in two ways: by selling the new collections and by commissioning secondary transactions with thin margins. Because they are ‘exclusive’ — each NFT token is one-of-a-kind and cannot be replicated — and are valued on artwork or digital asset scarcity.
NFT businesses believe the asset class requires a sophisticated tax structure. According to a business insider, art makers earn a royalty on sales and will be taxed 30% on the revenue, and once the art is resold, they will be taxed again on the royalty received on the big sale.
Another issue for the business is that several pure-play Indian NFT exchanges are not KYC compliant. Still, they will be required to comply with KYC and anti-money-laundering requirements under the new legislation.
In the United States, the Internal Revenue Service (IRS) defines cryptocurrencies as property rather than cash and levies taxes based on the asset’s holding term. If a buyer’s taxable income is less than $80,000, the capital gain is exempt from taxation.
Long-term capital gains are taxed at 0%, 15%, or 20%, depending on the year. “The best part is that people are no longer concerned about the NFTs’ legality. Since the national budget, we’ve witnessed a 10-15% increase in volume.
The exchanges must now adjust to the new tax regime and become compliant as soon as possible, “Guardian Link.io founders and CEO Ramkumar Subramaniam remarked. Viewing NFTs just as a means of exchanging products is incorrect. NFTs are assets, collectibles, and have practical worth.
NFTs are collectibles with a monetary value. Collectibles are sold in pawnshops worldwide, and they are not subject to the 30% tax. According to business leaders, the government has grouped all digital assets into one category.
Even though crypto prices rose on the day the Budget recommendations were revealed, market analysts predicted that investors would rush to sell their crypto assets to avoid paying a 30% tax starting April 1, 2022.
“Income from cryptocurrencies before April 1, 2022, maybe taxable as capital gains or business income,” says L Badri Narayan, adding that new middle-class investors who wish to generate extra money by taking risks may find the tax policy impractical.
NFT sales are expected to reach $25 billion in 2021, according to market tracker DappRadar. As a result, industry insiders have varied reactions to NFTs taxation, and they are interested to see what the future holds for both cryptos and NFTs.
Published By – Vanshu Mehra
Edited By – Subbuthai Padma
