Central Government notifies inclusion of NFTs and exclusion of certain items from the scope of virtual digital asset

 Central Government notifies inclusion of NFTs and exclusion of certain items from the scope of virtual digital asset

This Tax Alert explains Notification Nos. 74 and 75 of 2022 dated 30 June 2022 issued by the Central Government (CG). Notification No. 74 excludes certain items like gift cards, mileage points, web subscriptions etc. from the scope of definition of “virtual digital assets” (VDA). Notification No. 75 notifies “token” which meets the definition of VDA as non-fungible token (NFT) but excludes NFTs representing ownership of underlying tangible assets from the scope of definition of VDA.

The Finance Act, 2022 introduced a separate scheme of taxation of income arising from transfer of VDA under Income Tax Laws (ITL). For this purpose, the term VDA is defined widely under three limbs. The first limb covers any information or code or number or token (not being Indian currency or foreign currency) which meets certain conditions. The second limb covers NFT or any other token of similar nature, by whatever name called, but NFT itself is defined to mean such digital asset as the CG may, by notification in the Official Gazette, specify. The third limb covers any other digital asset, as the CG may, by notification in the Official Gazette, specify. The definition further authorizes the CG to issue notification to exclude any digital asset from the definition of VDA, subject to such conditions as may be prescribed therein.

Accordingly, Notification No. 74 excludes the following VDAs from the definition of VDA:

• Gift card or vouchers being a record that may be used to obtain goods or services or a discount on goods or services.

·         Mileage points, reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services. 

·         Subscription to websites or platforms or applications.

The Notification No. 75 specifies a “token” which qualifies to be a VDA under the first limb as NFT under the second limb. However, it further provides that it shall not include NFT, whose transfer results in the transfer of ownership of underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.

 The Notifications are effective from the date of publication in the Official Gazette i.e., 30 June 2022.