How to Report NFT Profit in India: A Complete Tax Guide for 2023

Understanding NFT Taxation in India

Non-Fungible Tokens (NFTs) have exploded in popularity, but many Indian investors remain confused about tax obligations. In India, NFT profits are treated as capital gains under the Income Tax Act. Whether you’re an artist, collector, or trader, understanding how to report NFT income is crucial to avoid penalties. The tax treatment depends on your holding period and activity type, making accurate reporting essential for compliance.

Calculating Your NFT Profit

Before reporting, determine your exact profit using this formula:

• Sale Price – Cost Basis = Taxable Profit
• Cost Basis includes: Purchase price, gas fees, minting costs, and platform commissions

Example: If you bought an NFT for ₹50,000 (including ₹2,000 gas fees) and sold it for ₹1,00,000 (minus ₹5,000 platform fee), your profit is:
₹1,00,000 – ₹5,000 – (₹50,000 + ₹2,000) = ₹43,000 taxable profit

Tax Rates Based on Holding Period

• Short-Term Capital Gains (STCG): Held ≤ 36 months
  Taxed at your income tax slab rate (up to 30%)
• Long-Term Capital Gains (LTCG): Held > 36 months
  Taxed at 20% with indexation benefits

Note: Frequent traders may be classified as businesses, making profits taxable as business income at slab rates.

Step-by-Step Reporting Process

1. Maintain Records: Preserve transaction history, wallet addresses, and cost proofs
2. File ITR-2 or ITR-3: Use ITR-2 for occasional investors; ITR-3 for professional traders
3. Report in Schedule CG: Disclose profits under ‘Capital Gains’ section
4. Declare Foreign Income: If using international platforms, report under ‘Foreign Income’
5. Pay Advance Tax: Required if tax liability exceeds ₹10,000/year (due in 4 installments)

Deadlines and Penalties

• Filing Deadline: July 31 (unless extended)
• Late Fees: ₹5,000 if filed by Dec 31; ₹10,000 thereafter
• Interest: 1% monthly on unpaid tax
• Scrutiny Risk: Unreported crypto/NFT transactions may trigger notices

Pro Tips for NFT Investors

• Use crypto tax software like Koinly or Catax for automated calculations
• Preserve proof of cost basis for 6 years post-filing
• Offset losses against other capital gains (STCG losses can offset STCG/STCG; LTCG losses only offset LTCG)
• Consult a CA specializing in crypto taxation for complex cases

Frequently Asked Questions

Are NFT losses tax deductible?

Yes, both short-term and long-term capital losses can be carried forward for 8 assessment years to offset future gains.

Do I pay tax if I transfer NFTs between my wallets?

No. Transfers between your own wallets aren’t taxable events. Only sales/exchanges trigger tax liability.

How are NFT royalties taxed?

Royalties are taxed as income from other sources at your applicable slab rate, separate from capital gains.

Is TDS applicable on NFT sales?

Currently, no TDS on NFT transactions. However, the proposed 1% TDS under Section 194S may apply starting July 2023.

Can I reduce NFT taxes legally?

Yes! Hold NFTs >36 months for lower 20% tax, use indexation to adjust for inflation, and harvest losses strategically.

Final Tip: With increasing CBDC scrutiny, maintaining transparent NFT tax records isn’t just compliant—it’s financially prudent. Always verify rules with a tax professional as regulations evolve rapidly.