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Rise of NFT's in India: Legal Implications

Recently, 'Fancraze' started a marketplace for cricket Non-Fungible Tokens (NFTs) in India.[1] Rohit Sharma launched his personal NFTs in Fancraze[2] while the company also went on to make deals with ICC[3] and IPL franchise Delhi Capitals.[4] With this 'Fancraze' becomes the pioneer of Cricket NFTs in India.

This has overwhelming repercussions. Cricket is by far the biggest sport in India and the introduction of cricket NFTs will see a tremendous increase in activities of sports NFTs in India. Further, this shall act as a gate of the introduction of other Sports NFTs in India. Therefore, understanding the implication of NFTs on sports and laws governing the same would become very important. Through this article, the author strives to provide a clear picture of sports and NFTs in India.

What is a Non-Fungible Token?

Before understanding non-fungible tokens, one needs to understand what fungible assets are. Fungible assets are those which don't lose or increase their value when they are transferred from one person to other. An example of the same would be a currency note. However, Non-Fungible assets are contrary to this. They have a unique value and the same shall fluctuate. A non-fungible token (NFT) is a unique, non-interchangeable digital asset stored on a blockchain.[5]

Sports NFT captures a unique movement from the field or sport-related activity and sells the same in the form of a digital asset. MS Dhoni's World Cup-winning six, and Neeraj Chopra's Olympic-winning throw are some examples of a unique movement that can be digitalized and traded as NFTs in the metaverse. Each NFT is tied to a blockchain which helps to verify the digital asset's authenticity and keeps the record of ownership and transaction history available.[6]

Once you buy an NFT, the same gets transferred to the buyers' digital wallets. The buyer now retains the ownership of the original token. Initially, the Indian marketplace held the conviction that the NFTs can only be traded in crypto Currency.[7]However, with the crypto dilemma in India, the purchase of NFTs through cash has also now been made possible.

NFT and its Legal Implications

The biggest question posits with regard to NFTs is the legalities that would govern them in India. As of now, India does not have a structured framework governing any of the modern-day phenomena such as Fantasy Games, E-sports, or NFTs. The most obvious legal implication in any NFT-related matter would be that of Copyrights. Copyrights in India are governed under The Copyrights act, 1957.

The provision of the said act considers an author of a work to be the first owner.[8]This usually holds true even in the case of NFTs. The original NFT creator shall hold the first owner status and shall sell the digital asset in the form of an E-contract. The rights of the buyers will be decided by the governing sales contract. Sometimes, the buyer will not be allowed to monetize or use the tokens for commercialization while some other contracts would allow the same.[9]

Licensing and smart contracts play an extremely crucial role in NFT transactions. Even though the owner has the original right over the token, he also can renounce the same through the contract.[10]These instances suggest that contracts and agreements for NFTs play a very critical role.

Further one needs to contemplate the possibility of a breach of privacy of an NFT holder or representation of fake NFTs. Since the NFTs are transacted in a digital medium, there's a high possibility of copyright violation through piracy and copyright violation. Hence, provisions for protecting NFTs and NFT token holders against piracy and third-party invaders also need to be developed.

The Intellectual property-related issues and intricacies with regard to NFTs are not only limited to copyright. Recently, Nike became the first shoe company to hold a patent for blockchain-based sneakers called 'Cryptokicks'.[11]This has opened up a whole new possibility of blockchain-based that is NFT-backed authenticity over the goods consumers buy. This shall create whole new legal obligations over patent filing. These instances clearly suggest that with the increase of NFTs, the legal embargo shall only intensify.

Taxation on NFTs in India

The winter budget session of 2022-23 saw the government introducing taxation on Cryptocurrencies and NFTs.[12] Income earned from NFT transactions will attract a capital gain of 30 percent and a TDS of 1% will be levied.

"With an announcement of taxing virtual digital assets at 30% without allowance of any expenses along with non-allowance of carrying forward of loss from the sale of such assets and making withholding tax applicable, the government has provided a clear view enabling the elimination of uncertainty around the same."[13]Even though experts believe this to be a risky move as there are chances of transactions getting frustrated, the government has clearly set up its ambition with respect to yielding revenue.

Conclusion
With the increase in the role of NFTs in the Indian market, there is a necessity of bringing up legislation or a guideline to govern NFTs. Currently, NFT-related transactions are being governed by archaic laws such as Copyright, and contract laws. There is a necessity of introducing a specific legislative system that shall guide and govern the NFT-related transaction. This shall protect the interest of the NFT owners and also the interest holders. Through this India shall be made into a more congenial market for the futuristic concepts and thus shall pave way for the introduction of more technology-based assets.

End-Notes:
  1. Sethu Pradeep, 'Tiger global backed Fancraze launches cricket NFT's capturing famous movements', Available at https://inc42.com/buzz/fancraze-drops-first-cricket-nft-packs-in-collaboration-with-icc/ (Last visited on 10th June 2022).
  2. Varuni Khosla, Rohit Sharma launches first personal NFT, Available at https://www.livemint.com/sports/cricket-news/rohit-sharma-launches-first-personal-nft-11652350245890.html (Last visited on 10th June 10, 2022).
  3. ICC partners with Fancraze to unravel crictos, Available at https://www.icc-cricket.com/media-releases/2441512 (Last visited on 10th June 2022).
  4. Delhi Capitals associates with Fancraze becomes the first IPL franchise to launch digital collectibles and NFTs, Available on https://www.delhicapitals.in/news/delhi-capitals-associates-with-fancraze-becomes-first-ipl-franchise-to-launch-digital-collectibles-and-nfts (Last visited on 10th June 2022).
  5. NFT: the future of digital assets in sports, Available on https://www.pwc.com/us/en/tech-effect/emerging-tech/nfts-the-future-of-digital-assets-in-sports.html
  6. Sports NFT- What is NFT and how it is used in Sports? Available on https://exploresportsmanagement.com/what-sports-nft/ (Last visited on 13th June 2022).
  7. Dharamvir Brahmabhatt & Devarsh Shah, Non-fungible Tokens: Examining its legal validity in India, NLULR Available at http://www.nlujlawreview.in/non-fungible-tokens-examining-its-legal-validity-in-india/ Last visited on 15th July 2022.
  8. The Copyrights act 17 (14) acts of the parliament 1957.
  9. Non-Fungible Tokens and copyright laws: A Nifty Dilemma, Available on https://spicyip.com/2021/04/non-fungible-tokens-nfts-and-copyright-law-a-nifty-dilemma.html (Last visited on 15th July 2022).
  10. NFT and its relationship with IPR, Available at https://www.khuranaandkhurana.com/2021/11/15/nft-and-its-relationship-with-ipr/ (Last visited on 15th July 2022).
  11. Nike now holds a patent for blockchain-based sneakers called 'Cryptokicks' Available on https://thenextweb.com/news/nike-blockchain-sneakers-cryptokick-patent (Last visited on 15th July 2022)
  12. Malini Bhupta, Budget 2022-23: Income tax from Crypto-currencies, NFTs to be taxed at 30%, Available on https://www.financialexpress.com/budget/income-from-cryptocurrencies-nft-trade-to-be-taxed-at-30/2423501/ (Last visited on 15th July 2022).
  13. Malini Bhupta, Budget 2022-23: Income tax from Crypto-currencies, NFTs to be taxed at 30%, Available on https://www.financialexpress.com/budget/income-from-cryptocurrencies-nft-trade-to-be-taxed-at-30/2423501/ (Last visited on 15th July 2022).

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