Non-fungible tokens (NFTs) are blockchain-based cryptographic assets having unique identifier codes and information that separate them from one another. They cannot be traded or swapped at parity with cryptocurrencies. This is in contrast to fungible tokens, such as cryptocurrencies, which are indistinguishable from one another and may thus be used as a medium for economic transactions. They may be used to indicate ownership of one-of-a-kind goods and they enable us to tokenize items such as art, valuables, and even real estate.
NFTs and Cryptocurrencies address some of the complications that surround the internet these days. As everything becomes increasingly digital, there is a greater need to imitate physical attributes such as scarcity, uniqueness, and evidence of ownership. Not to add that digital objects frequently only function inside the domain of their offering. For example, you cannot resell an iTunes mp3 you bought, nor can you trade one company's loyalty points for credit it on another network, even when there is a demand for it.
The Government has not yet defined the NFT in a proper elaborative way. The newly amended Finance Bill, 2022 defines NFTs as, “such digital asset as the Central Government may, by notification in the Official Gazette, specify;”. The new rule is likely to be seen as taxing NFTs similarly to virtual digital assets. Analysts claim that each and every cryptocurrency besides the digital rupee (and possibly some of the top currencies like bitcoin and ether) would be prohibited from being used as legal money. Cryptocurrencies might be traded as assets or purchased as NFTs, but not groceries or other products.
Current Legal Position
India has not enacted legislation governing the NFT. The effort of enacting effective NFT laws now underway. According to NASSCOM study, the Indian authorities and public enterprises have fostered and backed blockchain-based firms that employ more than 50 % of the global workforce. It might alter with the passage of the 2019 Cryptocurrency Banning and Regulation of Official Digital Currency Bill. Section 3 of the law prohibits the creation, mining, selling, holding, trading in, transferring, disposing of, issuing, and use of cryptocurrencies. "Cryptocurrency" is defined in the proposed Legislation as "any information, code, number, or token, created by cryptographic or other means, that has a digital representation of value and is useful in business transactions, or operates as a store of value or unit of account." NFTs may be characterised as "cryptocurrencies" since they provide an electronic depiction of an inherent assets.