What is a non-fungible token?
Non-fungible tokens (NFTs) are digital tokenized assets that most often represent real-world objects such as physical art, 2D and 3D art, music, games, and video. NFTs can usually be bought, sold and traded online via cryptocurrencies. NFTs have been on the market since the beginning of 2014, but recently they have received a great deal of attention in parallel with the evolution of the cryptocurrency field. NFT is a unique mode that stores data units in a digital ledger (blockchain).
A blockchain is a digital data record organized in chronological order linked and protected by encrypted proofs. Blockchain electronically stores records / information in digital format, which plays an important role in cryptocurrency transactions by protecting the recorded data of every step taken in the digital world. The blockchain holds a higher security position compared to a regular digital database that is regularly maintained by the entity. That is, the blockchain groups the information by collecting the information in the blocks that hold the above records / information. These blocks in the blockchain store all the information, are closed when full, and are linked to previously filled blocks to form a chain of blocks, commonly referred to as a blockchain. Once created, the blockchain entry is immutable, and there is the usefulness of the blockchain record.
NFTs can be defined in layman’s terms as digitally generated objects such as photos, images, video clips (2D or other), audio clips, digital renderings, and other types of unique digital files that can retain digital monetary value. increase. It essentially has a defined proof of public ownership.
The popularity of NFTs can be confirmed by the recent hype that Vignesh Sundaresan, a graduate of US-based startup accelerator Y-Combinator, purchased NFTs in 2021. The first 5000 days are $ 69 million.
NFT Global Legal Framework:
In February 2022, the United Arab Emirates enacted a law on the regulation of virtual assets, recognizing cryptocurrencies as valuable assets and establishing a public company called VARA (Dubai Virtual Asset Regulator). This corporation reserves the legal, financial and administrative autonomy to take all actions / dispositions / activities necessary to ensure that the objectives set forth in VARA have been achieved. VARA’s primary objectives are to raise awareness of investment in the virtual asset services and products sector, promote innovation in that sector, and develop and relate to the regulations necessary to protect virtual asset investors and dealers. Develop rules, regulations and standards for monitoring and monitoring entities and virtual assets provided by virtual asset platforms and services. Several other jurisdictions around the world have also begun the process of adopting cryptocurrencies and amending the law to control them. Recently, El Salvador came to the news after investing nearly $ 100 million in Bitcoin.
In India, the 2022 financial bill clarifies the taxation of digital assets. In accordance with the 2022 financial bill, all transactions related to virtual / digital assets will be subject to a 30% tax. Virtual / digital assets usually refer to cryptocurrencies and NFTs. In addition, it has been clarified that transactions between digital gold and central bank digital currencies are not included in the scope of such taxation. This taxation framework has been in effect since April 2022.
The Central Commission for Direct Taxes has defined the term “” in a recent notice dated 30 June 2022.Virtual digital assetsBased on Section 247 (A) of the Income Tax Act of 1961 (IT Act). Following the notice, CBDT has recognized NFTs as eligible tokens as virtual digital assets under IT law.However, it also makes it clear that it is not included in the (in transit) NFT.
Such transfer will transfer ownership of the underlying tangible property subject to legally enforceable tangible property in the jurisdiction of India. Therefore, if a property record is maintained on the blockchain, the token / NFT transfer that represents the record of ownership of that property is not included within the scope of the virtual digital asset for IT law purposes.
The conclusion is
Currently, there are no laws governing NFT and cryptocurrency transactions in India, but given the pace of NFT development and its perceived value and interests, the regulatory framework has evolved to create and commoditize NFTs. It is expected to manage the conversion. However, as Smt. Sitaraman correctly recognizes that regulation in this area requires a great deal of international cooperation, which is by no means a small feat. NFT regulations are unavoidable, but they are expected to take some time to implement. Until that time, NFT players will have no choice but to step on the gray areas.
The authors are Mallika Noorani, Senior Partner of Sachit Kumar, and Akkshay Thawani, Associate of Parinam Law Associates.
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