With respect to any technology, India has always been the “never on time but never too late!” kind of market. The same pattern can be observed with respect to anything involving blockchain technology. Indian might have been late to jump into the bandwagon of cryptocurrency trading, but it has also produced some of the biggest crypto exchanges like WazirX.
The situation is not any different for non-fungible tokens or NFTs as they are commonly known. India, however, is a bit convoluted in terms of its legal flexibility. There are a few things that need to be understood before an Indian citizen invests or buys non-fungible tokens.
What Are NFTs?
Before we deal with the trading of NFTs, we need to understand what NFTs are. The NFT is yet another innovation in the crypto world. Unlike other crypto tokens, which are considered fungible a.k.a. easily treatable without any deterioration in value, a non-fungible token or an NFT represents or certifies ownership or authenticity. It is unique, and it implies that there is no other NFT congruent to an existing NFT.
NFTs are, contrary to many crypto coins, not breakable into smaller units. This opens up opportunities for blockchain technology to be incorporated in multiple fields that existed, for a long time, in the legacy world and ecosystems.
Applications Of NFTs
NFTs can be used to sell the ownership of digital art and programmable artwork. It is almost like owning a classic painting but in the digital world. An NFT crypto art marketplace infuses the goodness of both new technology and creative art.
NFTs can also be used by musicians/music artists to sell their work to connectors. It brings back the notion of vinyl records and audio cassettes where the numbers were limited. This gave the collector a sense of uniqueness and pride in owning a record.
While not very popular, NFTs have also been used to sell unique domain names in the crypto space.
It has also positively impacted the fashion industry by reducing the instances of counterfeits.
NFTs and The Indian Legal System
It took time for the Indian legal system to evolve in embracing the manifestations of cryptocurrency and blockchain. While crypto coins are not legal instruments of transaction, cryptocurrency exchanges are valid financial businesses. With respect to non-fungible tokens, there are a lot of uncertainties.
As you may have understood, an Non Fungible Tokens does not have any value on a standalone basis. An NFT, as much as it can represent the ownership of programmable art, can also represent owning of shares in a company. It might not be fair to group both of them under a single legal framework.
If we were to take into consideration the location of the NFT, it is uncertain because of the virtue of decentralization in the blockchain. It cannot be pinpointed to a single location as the details of ownership are distributed all over the network. It, therefore, becomes mandatory for the legal system to take into consideration the location of the user to represent the location of the non-fungible asset.
NFTs cannot completely be listed as a virtual currency because there are instances when NFTs could represent something tangible and something that has monetary value in the legal world. Like shares in the company. As long as the NFT represents something intangible, there are not many complications involved. The moment it becomes a representation of something tangible and something of real-world monetary value is when the legal system starts to become a difficult-to-navigate maze.
The Border Challenge
Today, most of the NFTs originate in countries outside India. To address such transactions that began to intensify at the break of this millennium, the FEMA (Foreign Exchange Management Act) was introduced in the year 1999. Using the provisions of the FEMA, crypto assets and NFTs should be treated as intangible assets like software or intellectual property. However, when it comes to the question of whether or not an NFT can be considered a security, the answers are not crystal clear.
It is to be remembered that the NFT representing an asset does not essentially imply ownership. Anyone could possibly create an NFT for famous art pieces like Mona Lisa, but unless the NFT is validated by French government authorities as proof of the title, it does not represent anything! Owning an NFT simply means that the owner of the NFT owns a digital representation of the item but not the copyright to reproduce the work, especially in the case of digital art and music.
The taxation ecosystem it’s also complicated, but there is a considerable degree of transparency and clarity. Digital art NFT bought from an NFT crypto art marketplace will fall under The bracket of income tax and GST. Taxation associated with NFT securities will fall in a different spectrum. In short, the tax treatment of NFTs follows the nature of the asset it is designed to represent.
Anything said, it is quite identifiable that the absence of an NFT marketplace is one of the biggest contributing factors for NFTs not taking proper routes in India and for anything related to crypto having tax and legal complications. With the availability of the technology, and with blooming blockchain development companies around the country, it is always possible to start your own NFT crypto art marketplace or even a generic NFT marketplace.
This will not only make the Indian legal system more congenial and accommodative towards crypto and its manifestations but also encourage creators because they can’t sell their creations without going through intermediaries that might cost a lot of money while at the same time, retain the copyrights in a definite manner because of the immutability of the blockchain.