How Will Income From Land in Metaverse Be Taxed?

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As the Metaverse continues to evolve into a burgeoning digital realm, questions regarding its economic implications and taxation policies are becoming increasingly relevant. One crucial aspect of this discussion revolves around the taxation of income generated from virtual land within the Metaverse. As users invest time, resources, and real-world capital into virtual properties, understanding the taxation framework for these transactions becomes essential.

Virtual Land in the Metaverse

Each metaverse, like actual land, will have a limited supply of land. According to the rule of economics, rarity and scarcity contribute to value appreciation. The same concept applies to NFT. Nike released 20,000 virtual sneakers, 98 of which were limited edition, making them collectible. Someone paid $130,000 for a virtual pair of Nike trainers.

Metaverse marketplaces use virtual reality, blockchain, and NFT technology to create a virtual area that consumers may purchase as NFT. For example, in Metaverse, a virtual mall built on blockchain technology networks, users may buy commercial space as virtual real estate and earn money by leasing, promoting, and improving it to provide an immersive experience to visitors using VR technology.

Virtual Land in the Metaverse

The Metaverse’s lands are measured in tiles, which are the smallest measurable units and cannot be further subdivided. Because each tile has a unique address (block ID) and geolocation (longitude or latitude), it is non-fungible. Fungible refers to something that can be substituted.

The property of a good or commodity that makes it possible for another identical item to replace it is known as fungibility. For example, you can exchange one cryptocurrency for another or a fiat currency and get the same value.

Read MoreHow to Buy Land in the Metaverse for Free?

‘Non-fungible’, on the other hand, signifies that it is unique and cannot be substituted with something else. Because each tile is unique in the metaverse, it is marketed as an NFT.

How Will Income From Land in Metaverse Be Taxed?

Renting virtual land in the metaverse, running an e-commerce business on it, organizing an event on it, or selling it are all ways to make money. Let us now discuss the taxability of each income.

Renting Virtual Land

As previously noted, entities would require land in the Metaverse to host events or run an e-commerce firm. These virtual territories can be purchased from the marketplace or rented from their owners.

Such rental income is not taxed under the head of income from home property since the first criterion for taxing rental income under this head is that the revenue is generated from a house property.

This means that no standard deduction of 30% from rental income will be allowed. This is because, under present income tax laws, only income from house property is taxed under the heading ‘Income from house property’.

Renting physical land is taxed under the heading ‘Income from dwelling property’. According to tax regulations, income from renting physical land is taxed as “income from other sources.”

Here is a full guide on how to rent your virtual land: How to Rent Land in the Metaverse? A Complete Guide!

Such money is taxed under the heading of income from other sources or business income, as applicable. The duties to keep books of accounts and have them audited continue to apply.

Running an E-commerce site or organizing an event

Anything that is earned by operating an e-commerce business in the metaverse is subject to taxation in the same manner that traditional business income is. The taxpayer may deduct any costs that are solely and exclusively related to such business.

Similarly, if a resident person hosts an event in the metaverse, the money is taxable as either business income or residuary income (income from other sources), depending on the circumstances.

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