Here’s How New Crypto Regulations Affect In-Game Rewards

The advent of cryptos and blockchain has taken the multi-billion dollar entertainment industry to a whole new level. One of the main beneficiaries of blockchain technology is crypto gambling, especially play-to-win games. Gamers need digital assets such as digital goods, weapons, or wearable devices when playing crypto games purchased with cryptos. Game designers create transferable and unique game objects using blockchain. You can exchange these items for cryptos. Additionally, online games offer rewarded ads where you complete specific tasks to earn cryptocurrencies. Let’s understand how crypto laws affect game rewards.

What are game rewards in cryptos?

You can earn crypto by focusing on play-to-earn or GameFi blockchain games. This is to make an initial contribution to play the crypto game.

Many crypto games run on the Ethereum blockchain. You need to buy Ethereum by converting your money through a crypto exchange. Additionally, crypto games offer rewards via non-fungible tokens (NFTs) or in-game currency for computer challenges and quests.

NFTs are digital assets with unique identification codes representing real-world objects like videos, art, music, and games. You can convert NFTs and in-game currency into real money or other cryptos.

One of the main differences between online video games and crypto games is that you can transfer in-game currency outside of the game and exchange it for NFTs or cryptos.

How Do Crypto Laws Affect Game Rewards?

The government has introduced a 30% tax on the transfer of virtual digital assets or VDAs effective April 1, 2022. As cryptos are classified as VDAs, one incurs this tax on income from cryptos without allowing the deduction of expenses to except for the cost of acquisition. Additionally, the new law impacts in-app purchases and reward points offered by crypto gambling apps.

The government is proposing to impose a 1% withholding tax (TDS) on virtual digital asset transactions. Additionally, you would incur TDS on in-app purchases and crypto gaming app rewards where the burden of compliance falls on the purchaser.

However, gray areas persist around the perception of TDS for in-app purchases of game assets in crypto games. For example, if you buy weapons in a crypto game, will the TDS be charged every time you buy a new weapon or is it applicable to all games?

Let’s understand the taxation of crypto gambling rewards with an example. Suppose you earn five tokens worth Rs 10,000 as a reward for winning crypto games. Two taxable events occur in this scenario. First, you incur a 30% tax on the market value of the tokens when you earn them. It is considered a gift from the gaming company and the recipient of the reward is required to pay 30% tax. This translates to Rs 3,000, or 30% of Rs 10,000.

The next taxable event occurs when you sell or transfer these tokens. You are taxed at the rate of 30% after deduction of the cost of acquisition. The acquisition cost is the market value of the tokens taken into account when paying the tax when winning the game.

Suppose you sell five tokens for Rs 25,000. You will need to subtract the acquisition cost of Rs 10,000 from the selling price of the token of Rs 25,000. You incur a 30% tax on Rs 15,000, which translates by Rs 4,500. Note that the detailed instructions regarding this fee to be determined are not yet defined.

The crypto tax affects people who earn reward points and make in-app purchases in crypto games. Additionally, the industry fears that higher levels of taxation could discourage people from playing crypto, which would affect the industry. Crypto gaming has vast potential, but crypto taxation rules on rewards and in-app purchases will impact how the industry moves forward.

Views are personal. The author is the founder and CEO of Clear.

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Here’s How New Crypto Regulations Affect In-Game Rewards

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