1. Legal Status of NFTs in India

(A) Not Recognized as Legal Tender

• NFTs are not currency under the Reserve Bank of India Act, 1934.
• The RBI does not authorize them as money or payment instruments.

(B) Classified as Virtual Digital Assets (Tax Law)

Under Section 2(47A) of the Income Tax Act, 1961, NFTs fall under:

• “Virtual Digital Assets (VDA)”
• Includes crypto-assets and NFTs

Tax implications:

• Flat 30% tax on gains
• No deduction except cost of acquisition
• 1% TDS (Section 194S) on transfers above threshold

(C) Not Regulated as Securities (Yet)

• NFTs are not automatically treated as securities under SEBI laws.
• However, if an NFT is fractionalized or investment-driven, it may fall under securities scrutiny.

2. Key Legal Domains Governing NFTs in India

(A) Income Tax Law

• NFTs are taxed like speculative digital assets.
• No distinction between short-term/long-term capital gains (flat 30%).

(B) Goods and Services Tax (GST)

• NFT transactions may attract 18% GST depending on classification:
  • Digital service (if sold via platform)
  • Intellectual property license (if linked to artwork/music)
• Ambiguity remains on whether NFT = “goods” or “services”

(C) Information Technology Act, 2000

• NFTs are governed indirectly via:
  • Section 43A (data protection negligence)
  • Section 66C/66D (identity theft, fraud)
• Platforms selling NFTs are treated as intermediaries

(D) Contract Law (Indian Contract Act, 1872)

• NFT ownership transfers are governed by smart contracts + legal contracts.
• Enforceability depends on:
  • Offer
  • Acceptance
  • Lawful consideration

(E) Intellectual Property Rights (IPR)

• NFTs do NOT automatically transfer copyright.
• Buying an NFT usually means:
  • Ownership of token
  • NOT ownership of underlying artwork (unless explicitly licensed)

(F) FEMA (Foreign Exchange Management Act, 1999)

• Cross-border NFT trades may be treated as:
  • Capital account transactions
  • Subject to RBI/FEMA restrictions

3. Judicial Interpretation Through Key Case Laws

Although Indian courts have not yet ruled specifically on NFTs, crypto and digital asset-related judgments form the legal foundation.

1. Internet and Mobile Association of India v Reserve Bank of India

Key Issue:

RBI banned banks from dealing with cryptocurrency businesses in 2018.

Judgment:

• Supreme Court struck down RBI circular
• Held that the ban was disproportionate and unconstitutional

Relevance to NFTs:

• Confirms that digital assets cannot be arbitrarily restricted
• Supports legality of NFT marketplaces indirectly
• Recognizes legitimacy of virtual asset ecosystem

2. Shreya Singhal v Union of India

Key Issue:

Validity of Section 66A of IT Act (online speech restriction)

Judgment:

• Section 66A struck down as unconstitutional
• Strengthened freedom of expression online

Relevance to NFTs:

• NFT art is protected as digital expression
• Prevents overbroad restrictions on NFT-based creative content
• Supports creator rights in digital marketplaces

3. Anvar P.V. v P.K. Basheer

Key Issue:

Admissibility of electronic evidence in courts

Judgment:

• Electronic records must comply with Section 65B Evidence Act certification
• Strict rules for digital proof admissibility

Relevance to NFTs:

• NFT ownership records may be used as evidence
• Blockchain records must be properly authenticated in disputes
• Establishes evidentiary framework for digital assets

4. Arjun Panditrao Khotkar v Kailash Kushanrao Gorantyal

Key Issue:

Clarification of electronic evidence requirements

Judgment:

• Reaffirmed mandatory 65B certificate requirement
• Allowed flexibility only when device is inaccessible

Relevance to NFTs:

• Strengthens legal reliability of blockchain data
• NFT transaction logs may be admissible only if properly certified

5. K.S. Puttaswamy v Union of India

Key Issue:

Right to privacy as a fundamental right

Judgment:

• Privacy declared a fundamental right under Article 21

Relevance to NFTs:

• NFT platforms handling user wallets must protect data privacy
• Impacts KYC, identity verification, and blockchain analytics
• Raises concerns over surveillance of digital asset holders

6. Avnish Bajaj v State (NCT of Delhi)

Key Issue:

Liability of online marketplace for user-uploaded illegal content

Judgment:

• Intermediaries may be liable if they knowingly facilitate illegal content
• Early foundation of Indian intermediary liability doctrine

Relevance to NFTs:

• NFT marketplaces may be liable for:
  • Copyright infringement NFTs
  • Fraudulent or obscene digital tokens
• Basis for regulating NFT platforms as intermediaries

4. Overall Regulatory Position on NFTs in India

Current Legal Reality:

NFTs in India exist in a regulatory grey zone:

• ✔ Legally tradable (not banned)
• ✔ Taxable under VDA rules
• ❌ Not recognized as currency
• ❌ Not fully defined as securities or property
• ⚠ Subject to multiple overlapping laws

5. Key Legal Risks in NFT Ecosystem

1. Tax Compliance Risk

• High taxation reduces liquidity and trading activity

2. IP Infringement Risk

• NFTs often minted without copyright ownership

3. Fraud & Misrepresentation

• Fake NFTs, plagiarism, rug pulls

4. Regulatory Uncertainty

• Future SEBI or RBI regulation may reclassify NFTs

6. Conclusion

India currently regulates NFTs indirectly through tax law (VDAs), IT law, contract principles, and judicial precedents from crypto and digital rights cases. While courts have not yet directly ruled on NFTs, decisions like IAMAI v RBI and Shreya Singhal strongly influence their legal treatment.

The framework is therefore:

“Permitted but heavily taxed and legally undefined digital assets operating under evolving judicial and regulatory interpretation.”