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- Understanding NFT Taxation in India
- How NFT Profits Are Taxed in India
- Step-by-Step Guide to Reporting NFT Profits
- Essential Documents for NFT Tax Filing
- Common NFT Tax Reporting Mistakes to Avoid
- Frequently Asked Questions (FAQ)
- Are NFT losses tax deductible in India?
- Do I pay tax if I sell NFTs for cryptocurrency?
- How are NFT royalties taxed for creators?
- What if I bought NFTs before the 2022 crypto tax rules?
- Can I use crypto tax software for NFT reporting?
- Professional Guidance Recommended
Understanding NFT Taxation in India
As Non-Fungible Tokens (NFTs) explode in popularity among Indian investors, understanding how to report NFT profits to the Income Tax Department is crucial. In India, NFT transactions fall under the capital gains tax regime, treating digital assets similarly to stocks or property. Whether you’re an artist selling creations or an investor flipping NFTs, all profits are taxable under the Income Tax Act, 1961. Failure to report can lead to penalties up to 50% of tax due plus interest charges.
How NFT Profits Are Taxed in India
The Indian government classifies NFTs as virtual digital assets (VDAs) under Section 2(47A) of the Income Tax Act. Taxation depends on your holding period:
- Short-Term Capital Gains (STCG): If held for ≤36 months. Taxed at your income tax slab rate (up to 30%) plus 4% cess.
- Long-Term Capital Gains (LTCG): If held for >36 months. Taxed at 20% with indexation benefits plus 4% cess.
Note: A 1% TDS applies on NFT sale value exceeding ₹50,000 per transaction (₹10,000 for specified persons) under Section 194S.
Step-by-Step Guide to Reporting NFT Profits
- Calculate Your Capital Gain
Determine profit by subtracting:
• Cost of acquisition (purchase price + gas fees)
• Any platform commissions
From final sale value. Use FIFO method if multiple purchases. - Classify as STCG or LTCG
Verify holding period from purchase date to sale date. NFTs held ≤36 months = STCG; >36 months = LTCG. - File Income Tax Return (ITR)
Use ITR-2 or ITR-3 depending on income sources. Report gains under:
• Schedule CG (Capital Gains)
• Schedule VDA (Virtual Digital Assets) - Pay Applicable Taxes
• STCG: Pay as per your tax slab by July 31
• LTCG: Pay 20% with indexation by July 31 - Maintain Documentation
Preserve blockchain transaction IDs, wallet addresses, exchange statements, and purchase/sale agreements for 6 years.
Essential Documents for NFT Tax Filing
- Blockchain transaction hashes for all buys/sells
- Bank statements showing INR deposits from NFT sales
- Platform fee receipts (e.g., OpenSea, Rarible)
- Wallet address details linked to your PAN
- Contract notes from Indian exchanges like WazirX or CoinDCX
Common NFT Tax Reporting Mistakes to Avoid
- Ignoring small transactions: All sales must be reported regardless of profit/loss
- Forgetting gas fees: These reduce taxable gains when added to cost basis
- Mixing personal and NFT wallets: Maintain separate wallets for clear audit trails
- Overlooking airdrops: Free NFTs are taxed as income at market value when received
- Missing TDS credits: Claim 1% TDS deducted by exchanges in your ITR
Frequently Asked Questions (FAQ)
Are NFT losses tax deductible in India?
Yes, capital losses from NFTs can offset capital gains from other VDAs (crypto, tokens) within the same financial year. Unadjusted losses can be carried forward for 8 assessment years.
Do I pay tax if I sell NFTs for cryptocurrency?
Yes. Crypto received from NFT sales is considered income at its INR value on the transaction date. You’ll pay capital gains tax on the NFT profit and again when converting crypto to INR.
How are NFT royalties taxed for creators?
Royalties are treated as business income or income from other sources. Maintain detailed records of royalty payments received through platforms like Foundation or SuperRare.
What if I bought NFTs before the 2022 crypto tax rules?
Cost basis = higher of actual purchase price or fair market value on February 1, 2022. Consult a CA for complex cases involving pre-2022 acquisitions.
Can I use crypto tax software for NFT reporting?
Yes, platforms like KoinX or CoinTracker support Indian tax laws. They auto-calculate gains/losses and generate ITR-ready reports for ₹2,000-₹5,000 annually.
Professional Guidance Recommended
Given the complexity of NFT taxation, consult a Chartered Accountant (CA) specializing in crypto assets. They can help with indexation calculations, loss harvesting strategies, and responding to tax notices. Always file returns before the July 31 deadline to avoid penalties. Keep learning about regulatory updates as India’s crypto tax framework evolves.
🎁 Get Your Free $RESOLV Tokens Today!
💎 Exclusive Airdrop Opportunity!
🌍 Be part of the next big thing in crypto — Resolv Token is live!
🗓️ Registered users have 1 month to grab their airdrop rewards.
💸 A chance to earn without investing — it's your time to shine!
🚨 Early adopters get the biggest slice of the pie!
✨ Zero fees. Zero risk. Just pure crypto potential.
📈 Take the leap — your wallet will thank you!