Taxing Times for Investors Ahead as NFT Prices Drop Sharply

A recent drop in the price of high-value non-fungible tokens (NFTs), coupled with ambiguity in the recently established tax framework, will lead to tax scrutiny for Indian investor in the coming months, as assets valuations norms for digital asset remain unclear, according to tax experts: The tax department is sure to question the sharp drop in the valuations of these virtual digital assets, they said. The department would scrutinize NFT transactions on suspicion that some of the money may have been accepted in cash to reduce the tax outgo. “Any seller will have a hard time convincing tax officials that the sale was fair because of the big drop in NFT price, said Amit Mahesshwari, a tax partner at a tax consulting firm. To be sure, NFT a globally are also facing a downward pressure on valuations. An NFT of Twitter founder Jack Dorsey’s first ever tweet, which was put on sale by a crypto entrepreneur who had brought it last year for $2.9 million, has so far attracted offers of less than $10,000. Unlike a cryptocurrency such as bitcoin, NFT is essentially a unique code or blockchain-based digital file. An NFT can have paintings, videos, or even a poem recited by Amitabh Bachchan as an underlying value. In some cases, the buyers may have purchased NFTs with cryptocurrencies such as bitcoin, but sold them in rupees. Such transactions will face tax scrutiny in the coming months, say tax experts. The union budget for 2022-23 has introduced a flat 30% tax on all gains from the sale virtual digital assets and a 1% tax deducted at source on all crypto transactions.S-ET

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