NFT deals likely to attract equalisation tax

Any purchase in the non-fungible token or NFT will attract equalisation levy and goods and services tax (GST). This means that buying NFT will become expensive by a few percentage points. The tax department is likely to place a 2% equalisation levy on these transactions. The indirect tax department would seek that the exchanges pay GST on the transaction value according to a report in The Economic Times.

“NFT, just like cryptocurrency, will attract the 2% equalisation levy as well as GST,” said Girish Vanvari, founder of tax advisory firm Transaction Square.

He further added that the equalisation levy is applicable on any online transaction that is carried out by Indians from an exchange that is not based in India. However, GST will be applicable even if the exchanges are based in India.

Many experts have said that this taxation will be similar to that of 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 e-commerce operator under the EL law,” said Amit Maheshwari, tax partner at tax consulting firm AKM Global.

NFT is essentially a unique code or blockchain-based digital file. It arrived in India recently. This format can be used by Indians to buy art, digital goods, YouTube videos, or audio files.

For example, if an individual who has an original copy of a letter written by Mahatma Gandhi, wants to sell it through NFT mode. He/she has to first place the letter in a locker and an NFT, which is unique to the letter, has to 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.