This article is written by Vasundhara Sinha, BA, LL.B (Hons.), O.P. Jindal Global University during her internship with the Le Droit India
Abstract
This article critically examines the emergence of Non-Fungible Tokens (NFTs) within the Indian legal landscape, arguing that existing laws are ill-equipped to handle the complexities posed by blockchain-based digital assets. Drawing on Plato’s Allegory of the Cave, the article contends that while NFTs may appear revolutionary, they remain legally opaque—mere shadows of ownership without substantive rights unless supported by reform.Additionally, taxation policy and consumer laws lack precision, and regulatory agencies like SEBI and RBI have yet to offer definitive guidance. Through analysis of scholarly literature, global precedents, and industry perspectives, the article proposes comprehensive reforms—ranging from NFT classification and tax clarity to privacy-preserving technologies and platform accountability. Ultimately, it argues that India must adopt a forward-looking framework that treats NFTs not as speculative novelties but as integral components of a digital economy. With the right policies, NFTs can evolve from illusions into tools of secure ownership, innovation, and equitable digital growth.
Keywords: NFTs, blockchain, Intellectual property, smart contracts, Indian copyright laws, consumer protection, data privacy, digital ownership, juridical standards.
Introduction
Plato in his Allegory of the Cave, depicts individuals chained in darkness viewing shadows cast on the wall as the only reality they know. However, in truth, these shadows are merely reflections of objects behind them, like distorted fragments of a truth they have never fully seen. When one prisoner escapes the cave and witnesses the world in sunlight, he realizes that what he once accepted as real was only an illusion. This allegory is often interpreted as a metaphor for enlightenment and the pursuit of knowledge beyond appearances, and offers a striking parallel to our current moment in technological and legal evolution.
Non-Fungible Tokens (NFTs)—unique digital assets authenticated through blockchain—are not unlike those shadows on the wall. They serve as a representation of ownership, value, and authorship, yet their legal status remains ambiguous, especially in the Indian context.
As India ventures into the blockchain-driven digital economy, it finds itself at a crossroads: will it remain in the cave, mistaking the surface appeal of NFTs for fully realized digital rights? Or will it emerge into the light—developing a legal framework that clearly defines, regulates, and protects the rights associated with NFTs?
This article argues that India’s current legal system is ill-equipped to handle the multidimensional nature of NFTs. Critical gaps exist across intellectual property, consumer protection, taxation, data privacy, and jurisdiction. Without urgent and thoughtful reforms, NFTs risk remaining alluring but empty illusions—reflections of ownership without the substance of enforceable legal rights. Only by stepping out of the cave and confronting the reality of these digital constructs can Indian law keep pace with technological innovation and protect the creators, investors, and consumers of tomorrow.
From Tokens to Trust
NFT stands for Non-Fungible Token. The term “non-fungible” refers to something that is unique and irreplaceable.
NFTs are the digital equivalents of unique assets. They are created on blockchain platforms, which are decentralized and tamper-proof digital ledgers. The most used blockchain for NFTs is Ethereum, and a widely adopted technical standard for NFT creation is ERC‑721, which ensures that each token is individually distinguishable and cannot be replicated.
An NFT acts as a digital certificate of authenticity and ownership, often linked to a specific digital file like an image, video, piece of music or virtual real estate. It is stored permanently on the blockchain, which publicly records every transaction involving the token, from its original creation to each subsequent sale, thereby establishing a transparent and verifiable chain of ownership.
Importantly, while the associated digital file can still be viewed or downloaded by others, only the NFT holder possesses the token that proves authenticated ownership. This concept is based on the psychology of digital scarcity into realms where replication was previously limitless, enabling a new model of economic and cultural value online.
NFTs also incorporate features such as programmable royalties, which allow creators to receive a percentage of proceeds every time their NFT is resold. This has empowered artists, musicians, writers, and designers to bypass intermediaries and directly monetize their work with greater control over usage and compensation. Smart contracts—the self-executing protocols embedded in NFTs—facilitate these transactions automatically and securely.
In India, NFTs have gained significant traction across multiple sectors. Digital artists are minting their work and exhibiting it globally; celebrities and influencers are launching collectible NFTs; and startups are experimenting with NFT-based games, rewards, and ticketing systems. Platforms such as WazirX, BeyondLife.club, and Colexion are catering to a growing domestic user base, reflecting India’s rising interest in the Web3 economy.
Legal Grey Zones: Intellectual Property, Consumer Risks, and Regulatory Invisibility
Despite the growing popularity of NFTs in India, their legal treatment remains deeply fragmented and disjointed, particularly across intellectual property rights, consumer protection, and financial regulation. At present, India’s Copyright Act, 1957 does not account for the complexities of NFTs. While Section 17 grants exclusive rights to authors unless formally assigned, the sale of an NFT rarely includes such assignment. This disconnect has created a legal dissonance where token ownership does not equate to copyright ownership: buyers may own the token but not the rights to reproduce, modify, or commercially exploit the underlying work. Scholars argue that the smart contracts used in NFT transactions lack recognition under Indian copyright law, making royalty enforcement and IP licensing legally uncertain. Blockchain-based assets do not fit neatly within traditional categories of copyright, trademark, or design protection, exposing creators and buyers alike to ambiguity and risk. Further, unauthorized minting of NFTs based on copyrighted content constitutes infringement, even if the NFT is purchased in good faith—since the blockchain metadata reproduces the original digital work without formal licensing.
Layered with these issues are serious consumer protection concerns. NFT markets are rife with instances of fraud, misrepresentation, and “rug pulls”—where projects vanish after collecting funds. Despite the automated nature of smart contracts, current frameworks under the Consumer Protection Act, 2019 and the Indian Contract Act, 1872 offer limited remedies to buyers in such scenarios. Scholars have highlighted that consumers are often unaware of what rights they are purchasing, and there is a lack of enforceable obligations on platforms to provide disclosures, refund policies, or dispute resolution mechanisms. Without clear categorization, NFTs remain in a legal vacuum—neither fully goods nor services, and often beyond the reach of conventional consumer law.
This uncertainty is mirrored in India’s regulatory architecture, where oversight over NFTs is virtually absent. The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have yet to define whether and when NFTs constitute securities or financial instruments. While most NFTs are considered non-fungible and therefore outside the scope of SEBI’s regulation, fractionalized NFTs or those that promise returns may fall within the domain of collective investment schemes. In the absence of specific guidelines, regulatory responsibility remains blurred. As a result, experts recommend developing a clear classification framework that distinguishes between artistic NFTs and investment oriented tokens, and establishing inter-agency coordination between SEBI, RBI, and MeitY to ensure cohesive policymaking.
Complex Challenges: Tax, Privacy, Jurisdiction, and Global Lessons
As NFTs gain economic significance, their legal implications extend beyond ownership and consumer rights into the more intricate domains of taxation, data protection, and cross-border governance. In India, the Finance Act, 2022 brought NFTs under the umbrella of “virtual digital assets,” imposing a flat 30% tax on income from such assets and a 1% Tax Deducted at Source (TDS) on transactions exceeding ₹10,000. However, ambiguity remains around how different NFT-related incomes—such as royalties earned by creators, profits from resale or “flipping,” and even gas fees involved in minting—are to be classified. There is also uncertainty regarding tax obligations for NFT gifting and foreign remittances via NFT platforms, raising compliance questions under the Foreign Exchange Management Act (FEMA). Scholars and policy commentators have called for a joint clarification from the Central Board of Direct Taxes (CBDT) and the Reserve Bank of India (RBI) to ensure consistency and transparency in taxation across use-cases.
In parallel, data privacy laws clash with the immutability of blockchain technology. India’s Digital Personal Data Protection Act, 2023 grants individuals the right to correct or erase personal data—a right that conflicts with blockchain’s core principle of permanence. As Chinmay Singh notes, decentralized ledgers are fundamentally resistant to deletion, making it difficult to align with GDPR-style “right to be forgotten” provisions. One way forward is for platforms to adopt privacy-by-design solutions, such as storing personal metadata off-chain or using zero-knowledge proofs to limit access without compromising blockchain integrity. Legal recognition of such methods will be essential to harmonize technological architecture with privacy obligations.
Jurisdictional complexity further complicates NFT governance. While the Supreme Court’s decision in Internet and Mobile Association of India v RBI (2020) reinstated access to crypto exchanges, Indian users engaging with overseas NFT platforms remain vulnerable in the absence of clear cross-border enforcement frameworks. Since transactions span multiple servers and legal regimes, determining where disputes arise—or which country’s laws apply—is inherently difficult. Legal scholars recommend that platforms include explicit forum selection clauses, and that Indian law require compliance with domestic cyber and e-commerce regulations, even for foreign platforms operating within the Indian market.
Globally, countries are moving decisively to address these uncertainties. In the United States, Hermès successfully sued an artist for NFT-based trademark infringement in the MetaBirkin case, signalling that traditional IP laws can be extended to digital assets. The European Union’s Markets in Crypto-Assets (MiCA) regulation will soon bring NFT platforms under a licensing regime, while China permits NFTs within tightly regulated copyright structures despite its crypto bans. These examples underscore the potential for India to adopt a sandbox-based regulatory approach, combining innovation with oversight through platform registration, compliance audits, and controlled experimentation.
Even leading figures in the tech industry are engaging in this debate. Jack Dorsey, the CEO of Twitter has publicly challenged the relevance of traditional IP laws in the digital age, while Elon Musk has promoted open-source models by releasing Tesla’s patents to spur innovation. Their advocacy reflects growing recognition that rigid IP systems may no longer serve the fast-evolving Web3 ecosystem. For India, the challenge is to avoid both overregulation and laissez-faire chaos. Smart contracts embedded within NFTs offer new possibilities for programmable licensing, time-limited access, and recurring royalties, suggesting that modernized legal frameworks can strike a balance between protection and innovation in this emerging frontier.
Conclusion – From Shadows to Structure: A Legal Blueprint for NFTs
As India stands at the threshold of a digital renaissance, its policymakers must transform the legal shadows surrounding NFTs into a structured framework grounded in clarity, accountability, and innovation. Formal recognition of NFTs as a distinct category of digital property under Indian copyright and contract law is a necessary first step. Smart contracts facilitating IP licensing should be declared legally enforceable, supported by an online registry that transparently records copyright, resale rights, and ownership transfers. Equally, consumer protection law must evolve up to today’s needs to categorize NFTs as digital goods, mandating disclosures, refund protocols, and platform accountability, particularly in cases involving fraud, misrepresentation, or non-delivery. Regulators must also establish a classification system distinguishing between collectible NFTs and those functioning as financial assets, triggering oversight from SEBI where necessary.
Tax authorities, notably the CBDT and RBI, should jointly issue detailed circulars on the treatment of royalties, capital gains, gas fees, and cross-border NFT transactions, ensuring compliance under the Foreign Exchange Management Act (FEMA). On the privacy front, the law must adapt to blockchain’s immutable architecture by recognizing privacy-preserving alternatives like off-chain storage and zero-knowledge proofs. Likewise, jurisdictional clarity should be achieved through mandatory dispute resolution clauses in platform terms and a regulatory sandbox that allows innovation under structured supervision.
Returning to Plato’s Allegory of the Cave, NFTs today resemble the flickering images projected on the wall—glimpses of value and ownership that captivate but do not yet constitute legal reality. Without reform, India remains chained to these illusions, vulnerable to exploitation and legal confusion. But with deliberate, forward-looking policy, the country can emerge from the cave, illuminating the shadows with structured legal light. In doing so, India would not merely catch up with the NFT revolution—it could shape it, offering a blueprint for the global south on how to balance technological creativity with legal coherence. NFTs, then, would cease to be digital illusions and become beacons of authenticated expression, economic empowerment, and legally grounded innovation.
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