NFTs are a form of digital assets that are virtually traded and have gained a lot of popularity quickly. Let's have a look at their legal position in India.
NFTs have been very popular and have been used a lot in recent years. NFTs are convenient to transfer. These are cashless assets that are traded online. NFTs work on the blockchain system and it is usually very easy to locate and identify the owner of NFT on virtual platforms. NFTs are decentralised and ownership tracking is extremely easy.
However, the legal position of these digital assets is not very clear, especially in India. People interested in NFTs in India have demanded strong laws and rules regarding the dealing of NFTs so that they can confirm their long-term viability. The current situation clearly shows that digital assets like cryptocurrencies and NFTs are here to stay and the Indian Government and authorities must take action to make some strong rules related to them. In this article, we will talk about the different characteristics of NFTs and their legal position in India. You can now get basic legal advise from Vakilsearch!
What is NFT?
NFTs are Non-Fungible Tokens. NFTs or Non-Fungible Tokens are tokens that do not have a fungibility feature. Each NFT is unique, and can only be used for one specific purpose. A token’s value does not stem from its purpose or utility, but rather from the rarity of that token.
Fungibility is when a good or asset has the same amount of value whether it is used as a form of payment or held as an investment. Fungibility allows the market to determine the price of goods and assets based on their actual value, instead of what they can be. NFTs are digital assets that are transferred digitally and they gained a lot of popularity because of their convenience. Anything that can be turned into a digital asset is called an NFT.
Is NFT Legal in India?
There is not any law passed by the Indian government that is related to NFTs. However, there are some regulations that ban cryptocurrency in India and also state that it is illegal to mine, generate, hold or sell cryptocurrencies in the territory of India.
The bill that provides rules regarding cryptocurrency defines it as a number or token which is not a part of digital currency and is at risk of loss. However, the digital rupee which is issued by the Reserve Bank of India is considered legal and approved by the Indian government. The bill that defines the regulations related to cryptocurrency ensures the position of virtual and digital currencies in India. The draft bill says that digital currency is illegal in India and can lead to imprisonment of up to 10 years. A notice was also issued by the Reserve Bank of India which prohibits the dealing of digital currencies.
The rules and regulations regarding cryptocurrencies, digital currencies, and NFTs are not very clear in India. But the increasingly popular activity of NFTs and cryptocurrencies demand and need clear regulations. The NFT transactions also cause a great number of carbon footprints which is also an issue of concern and has to be thought upon.
The Income Tax Act of 1961 mentions that 30% of tax will be levied on the income generated from virtual digital assets. NFTs are included in it and therefore a similar tax will be imposed on them.
The Internet and Mobile Association of India has filed a petition which says that the Reserve Bank of India must not be allowed to make decisions related to virtual currencies and cryptocurrencies. In the judgment of this petition, Supreme Court accepted that the Reserve Bank of India is an important part of the country’s economy and they have the right to make decisions related to it but if it cannot prove any damage that is done by NFTs, there is no reason to ban the trading.
The Securities Contract Regulation Act of 1956 also has no categorisation of NFTs. Therefore, there are no strict rules or prohibitions related to them. The Copyrights Act of India mentions that there has to be a written contract that declares the copyright of the owner over the NFT. Only the owner has the right to reproduce and distribute copies of the item. This way the copyrights act of India at least protects against illegal copying of NFTs.
Characteristics of NFTs
NFTs are gaining popularity in India and it is important that you know what are the main characteristics of NFTs. Once the government and other authorities decide the rules related to NFTs it will be clear how you can mine, sell or hold these digital assets.
- NFTs are non-exchangeable, which means that they cannot be exchanged or replaced and have a unique value. Each NFT is unique and it cannot be exchanged for something that looks like it.
- NFT is only one of a type in the entire world which means that no other NFT holds a similar value as one particular item.
- Non-Fungible tokens or NFTs are meant to be exclusive property. It has only one owner and it has a specific agreement that shows the belonging of a person to that particular NFT.
- It is transparent ownership and the public can track down the owner of an NFT. This transparency is present in the transactions of NFTs because of the blockchain facility.
Conclusion
NFTs are Non-fungible tokens which means they cannot be exchanged with each other. All NFTs have a unique ID and their state can only be modified by transferring ownership of the token to another unique ID.Just like cryptocurrencies, NFTs have also gained a lot of popularity in recent years. This is because these are decentralised and work on the blockchain facility. The blockchain system allows for complete transparency about the ownership of NFT and also makes the entire transfer of digital assets easier.There are no clear rules related to NFTs in India. But if there is widespread abuse of this facility the government may take urgent action. As of now, there are multiple marketplaces where NFTs are sold and bought.
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