Double tax for NFTs: Deals may attract GST, equalisation levy

After cryptocurrencies, the non-fungible token or NFT has attracted the taxman’s attention as any purchase of the blockchain digital file will attract equalisation levy and goods and services tax (GST).

This would mean that any NFT bought could become dearer by a few percentage points. The tax department is set to slap a 2% equalisation levy on these transactions. Also, the indirect tax department would seek that the exchanges pay GST on the transaction value, say insiders.

NFT arrived in India a few months back and this means that Indians can now buy art, digital goods, YouTube videos or audio files in the format.

“NFT, just like cryptocurrency, will attract the 2% equalisation levy as well as GST,” said Girish Vanvari, founder of tax advisory firm Transaction Square. “The equalisation levy is applicable on any online transaction that is carried out by Indians from an exchange that is not based in India, while GST will be applicable even if the exchanges are based in India.”

Tax experts say taxation on NFT will be similar to cryptocurrencies.
“Though there is no express clarification with regard to taxation on crypto transactions, the facilitation of online trading of cryptocurrencies by the overseas crypto exchanges may be subject to equalisation levy at 2% as they could be treated as ecommerce operator under the EL law,” said Amit Maheshwari, tax partner at tax consulting firm AKM Global.

Unlike a cryptocurrency such as Bitcoin, NFT is essentially a unique code or blockchain-based digital file.

For instance, if an individual has an original copy of a letter written by Mahatma Gandhi, which he wishes to sell, then instead of directly doing it, this can be done through NFT. So first, the letter would be placed in a locker and an NFT— which is unique to the letter — will be created. Then it would be sold. So, the owner of this NFT for all practical purposes holds legal as well as bragging rights that came with the original letter.