Over the last few years, Non Fungible Tokens(NFTs) have been one of the best-performing asset classes. From little-known curiosities, they now dominate the conversation in both fintech and art. From transparent proof of ownership to opening up new possibilities in the digital world, NFTs can offer it all. But even with all these enticing options, why has the response to NFTs in India been lukewarm?
What Does NFT Mean?
A Non Fungible Token is a digital asset that operates on a blockchain. “Non-fungible” means that each NFT is a unique digital unit. Unlike crypto tokens, where two coins may be identical, NFTs have unique identifiers and proof of ownership which means no two NFTs are the same. These NFTs may take the form of art, music, movies or even real estate in the metaverse.
How Does an NFT Work?
NFTs use a technology called “smart contracts”, which are built into a blockchain. In essence, smart contracts are simply lines of code intended to automatically perform a function. Thus, NFTs are created or “minted” through these smart contracts. The contract assigns ownership to the original creator, while also making it possible for them to transfer the NFT to other users on the blockchain.
Buying and Selling
Each NFT can have only one owner at a time. Using unique identification methods, your record of ownership is stored in the blockchain. When you decide to sell your NFT, this ownership record is transferred to the buyer. The blockchain stores this transaction and shows the buyer as the new owner of the NFT. This leads to an easy and transparent verification process.
To own an NFT, you must have a crypto wallet. This wallet enables you to store your crypto tokens along with other digital assets. After that, it is simply a matter of finding an NFT you like and buying it to your linked wallet.
Why Are People Buying NFTs?
All these features raise the question, “Who buys NFTs?” There are several reasons why you might want to own NFTs.
- Trading – NFTs present a highly liquid market to investors to quickly buy and sell assets. In 2022, the NFT market has recorded over $46 billion in trading volume. This allows skilled traders to make very high returns in a short amount of time.
- Art Collection – Have you ever seen a piece of digital art that you loved? NFTs allow you to own these pieces as digital assets. This also allows you to support the original creator of the artwork by buying directly from them, without any intermediaries.
- Fan Memorabilia – Even Bollywood stars are getting into the NFT game. Amitabh Bachchan, one of the biggest stars in India, recently released his NFT collection. This included signed posters of his movies, poem readings and a Big B CryptoPunk. If you are a huge fan of some stars, NFTs may be a way for you to collect more of their unique memorabilia.
NFT Supply and Demand Gap In India
There are countless opportunities in the NFT space in India. However, creators and buyers see these opportunities differently.
NFTs provide creators with an easy means to monetise their creativity. Converting your digital art into an NFT is a very simple process with the possibility of very high returns. Added to this is the vibrant art history in India. From traditional art forms spanning all across the country to modern-day design and artwork showcased in the film industry, the options are endless.
- In 2021, fashion designer Manish Malhotra sold a collection of NFTs that included sketches of his most popular pieces. This collection sold out within minutes, with some NFTs selling for $4,000 each.
- Singer Ritviz, in collaboration with artist Santanu Hazarika also sold two of his albums as NFTs. The collection contained 21 songs and also included brand new artwork. After going live for sale, it sold out in less than a minute at $388.
While it may seem like NFTs are performing well, this is nothing compared to the unbelievable reception they have abroad. Rapper Snoop Dogg earned over $100,000 in just two days with his NFT collection, while actress Mila Kunis’ “Stoner Cat” series earned over $8 million.
The difference in popularity between India and abroad probably stems from our market. The founder of NFT platform Kalamint, Sandeep Sangli said, “Historically Indians have not been collectors. Art is something Indians haven’t really warmed up to as an asset class. For NFTs to work in India they need to have utility.”
Read more: Top 6 Most Popular NFTs In 2022
This indicates that there may be more engagement with NFTs in India if they serve a more practical purpose than simple art. This is why the GameFi ecosystem is gaining momentum. Over the last few years, gaming in India has skyrocketed. This also led to a surge in the popularity of play-to-earn games. Perhaps the gaming industry, with its unique applications of NFTs as in-game cosmetics or extra features, will lead to growth in the Indian NFT landscape.
Read more: Best Gaming Coins to Invest in 2022
How Are NFTs Taxed In India?
NFT Taxes : As per the 2022 budget, NFTs and other Virtual Digital Assets (VDA) will be taxed at a flat 30%. However, the Central Board of Direct Taxes has clarified what does and does not count as a virtual digital asset. The following do not fall under the definition:
- Gift cards and vouchers used as a record of discounts.
- Mileage points, reward points and loyalty cards.
- Subscriptions to websites and platforms.
Additionally, any NFT transfer that results in the transfer of an underlying tangible asset does not come under this definition, as long as the transfer is legally enforceable. Instead, this transfer will be taxed as the sale of a capital asset.
Finally, NFTs purchased from exchanges or artists abroad may also carry a 2% equalisation levy. This levy is applied to any online transaction made by Indians to a company outside India.
Is NFT Legal In India?
Currently, there is no legal framework under which NFTs operate. Therefore, while there is a lack of clarity about the future status of NFTs, they can be owned and traded at the moment. There are several NFT exchanges in India operational, through which you can purchase NFTs online. They also enable artists to list their art as an NFT for purchase.
NFT holders in India are currently less in number, but NFTs have a bright future for sure. It is expected that the long-awaited crypto bill will bring clarity to the status of digital assets as a whole. However, this bill is yet to be tabled by the government.