Understanding NFT Taxation in India
Non-Fungible Tokens (NFTs) are classified as Virtual Digital Assets (VDAs) under Section 2(47A) of the Income Tax Act. Profits from NFT sales are taxable, whether you’re an artist, collector, or trader. The Indian government introduced a 30% tax on NFT profits + 4% cess in the 2022 Budget, effective April 1, 2022.
How to Classify NFT Income for Tax Reporting
- Capital Gains: If held as investments (e.g., buying low/selling high).
- Business Income: For frequent traders or NFT creators selling original work.
- Other Sources: Royalties from secondary sales (rare cases).
Step-by-Step Guide to Report NFT Profits
- Calculate Profit/Loss
Sale Price – (Purchase Cost + Gas Fees + Platform Charges) - File ITR-2 or ITR-3
Use ITR-2 for capital gains | ITR-3 for business income - Disclose Under ‘Income from Other Sources’
Mention as ‘Income from Virtual Digital Assets’ - Pay Advance Tax
If liability exceeds ₹10,000/year (due March 15) - Verify TDS Deductions
Check Form 26AS for 1% TDS (Section 194S)
Essential Documents for NFT Tax Filing
- Wallet transaction history
- Platform statements (OpenSea, Rarible, etc.)
- Bank records of INR withdrawals
- TDS certificates (if applicable)
- Gas fee receipts
Penalties for Non-Compliance
- 50-200% penalty under Section 270A for underreporting
- ₹10,000-25,000 fine for missed deadlines
- Prosecution for tax evasion above ₹25 lakh
NFT Tax Reporting FAQ
Q1: Are losses from NFT sales deductible?
No. Losses cannot offset other income under current VDA rules.
Q2: How to report NFTs bought with cryptocurrency?
Treat as barter transaction – calculate INR value at transaction date.
Q3: Is GST applicable on NFT transactions?
Yes. 18% GST on platform fees & creator commissions.
Q4: Do I need to report unsold NFTs?
Only if transferred to private wallets – value as per I-T Rule 11UA.
Q5: How are foreign NFT platform earnings taxed?
Same 30% tax + mandatory disclosure in Schedule FA for foreign assets.
Pro Tips for NFT Investors
- Maintain separate wallets for personal & trading NFTs
- Use crypto tax software like Koinly or Catax
- Preserve records for 6 years post-assessment
- Disclose even if profits are reinvested in other NFTs
Note: Consult a CA specializing in crypto taxes for complex cases.
