Your stylish guide to navigating tax laws in the digital frontier
As the metaverse evolves, entrepreneurs are launching virtual businesses—selling virtual land, hosting events, or offering services in VR. But do you know how these earnings are taxed in India? From NFTs to virtual rentals, income in the metaverse falls under existing tax laws. This article breaks down everything you need to register, report, and file—elegantly and accurately.
Identify your model—this determines how your income is taxed:
Sale of virtual land or NFTs: Taxable under VDA rules (Section 115BBH).
Renting virtual land: Income treated either as business income or other sources (not under house property) .
E-commerce activities or services in the metaverse: Taxed like normal business income—allowed deductions for business expenses
💰 Tax Treatment You Need to Know
Income from the transfer of VDAs—including NFTs and virtual land—faces a flat 30% tax on profits, plus surcharge and cess
Only cost of acquisition can be deducted
No set-off of losses against other head or even other VDAs
If you rent digital land:
Taxed under business income or other sources
No 30% standard deduction (unlike physical property) Maintain books and audit if turnover exceeds thresholds
Hosting virtual shows or selling virtual goods:
Treated as business income
Allow legitimate expense deductions (platform fees, software, development costs)
| Business Type | Filing ITR Form | Key Compliance |
|---|---|---|
| Sole‑proprietor in metaverse business | ITR‑3 | Report PGBP income, GST (if applicable), audit if turnover high |
| Presumptive taxpayer under sections 44AD/ADA | ITR‑4 | Flat presumptive tax; simple bookkeeping allowed |
| VDA profits like NFT sales | Schedule VDA on ITR‑3 or ITR‑4 | TDS (1% under Sec 194S), disclose assets/income fully |
If you earn from VDA transactions, platforms or buyers may deduct 1% TDS under Section 194S—if ₹50,000+ considered in FY
TDS credit will appear in Form 26AS—check before filing
Enter all VDA incomes under Schedule VDA in ITR form—including acquisition & sale dates, amount
Maintain full books of accounts if income > ₹2 crore (or ₹50 lakh if presumptive not used).
Disclose Virtual assets and foreign earning even if income below threshold—as per CBDT foreign asset rules (penalties applicable up to ₹10 lakh) .
Use SOP for metaverse valuations (rule 115 of IT Act) for exchange rate conversions when necessary .
Elect presumptive taxation (Section 44ADA) if income from virtual services ≤ ₹50L and you prefer simplicity.
Use expense write-offs for business models (not in VDA profits).
If auditor’s threshold crossed, file audit reports 3CA–3CD or 3CB–3CD via updated ITR e‑filing utility released FY 2024‑25 .
Mis-classifying VDA profits as business or capital income—could incur penalty and additional tax under Section 115BBH.
Ignoring TDS or failing to claim credit—leads to mismatch in 26AS and avoided refund.
Overlooking VDA schedule in relevant ITR.
Undervaluing virtual transactions or missing audit compliance.