Profit/Loss from the transfer of NFT
The tax you need to pay*
Non-Fungible Tokens (NFTs) are unique digital items bought and sold on specialised platforms using blockchain technology. ‘Non-Fungible’ means unique and can’t be replaced with anything else. NFTs can be images, digital music or drawings, videos, GIFs or even physical objects of the real world. Blockchain technology makes a unique code for each NFT, which is saved on the ledger to verify its authenticity.
An NFT by digital artist Beeple, whose real name is Mike Winkelmann, was sold for $69.3 million at a Christie’s auction. You can’t spend NFTs several times, making them impossible to duplicate.
On the Ethereum platform, NFTs are deployed as smart contracts that contain functions and properties to manage NFT tokens.
The NFTs are included under the definition of ‘Virtual Digital Assets’ of the Income Tax Act. An income from virtual digital assets is taxed at 30%. To compute the taxable income from non-fungible tokens, you can only reduce the acquisition cost from the asset’s sale price. No deductions are allowed for any other expenses from such income calculated. The Non-Fungible Tokens Tax Calculator will calculate your taxable income and show the tax payable on such transactions.
Enter the sale price amount realised at the time of transfer of NFT and the cost of acquisition of the NFTs sold. The NFT tax calculator will calculate income tax liability arising from such transactions and show you the tax amount.
The income tax law does not allow a set-off of NFT loss from any other income. Also, suppose there are gains from transferring cryptocurrency during the same year. In that case, you have to pay tax on such gains without adjusting the losses incurred, if any, from other cryptocurrency transactions.
Hence, your total tax liability would be the aggregate of the tax computed in each of the cryptocurrency transactions. Therefore, it is essential to know that the details should be entered transaction wise in the said calculator. Do not combine the sale price or purchase cost of all the cryptocurrency/NFT transactions made during the year.
The definition of ‘Virtual Digital Assets’ under the Income Tax Act includes non-fungible tokens and tokens of a similar nature. While transferring virtual digital assets, the taxpayer should pay tax at 30% on profits earned. Hence, this tax rate will also apply to the transfer of NFTs. The income on which tax should be paid is calculated as the sale price reduced by the cost of acquisition of the tokens sold.
You cannot adjust the loss from the NFT transaction from any other income like salary, house property, capital gains, business, etc. Also, the unadjusted losses cannot be set off and carried forward to the subsequent years to set off against the future income.
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