Authored By: Jayita Gupta
ICSS Law College
Abstract
The metaverse economy, with its tokenised virtual assets and persistent immersive environments, is creating new regulatory challenges under Indian law. Existing statutes, such as the Information Technology Act, 2000, apply to certain aspects of this economy, but significant gaps remain, particularly with respect to cross-border activity. The virtual digital asset (VDA) tax rules, intellectual property laws, and the Digital Personal Data Protection Act, 2023 together address platform transactions and associated harms, though unevenly.
However, a comparative analysis of European Union regulations and other international frameworks reveals critical deficiencies in India’s approach to judicial enforcement, virtual property classification, smart contract validity, and consumer protection. Although India’s current legal architecture provides a baseline framework, it remains fragmented. Rather than enacting sweeping new legislation immediately, the optimal approach involves introducing targeted guidance and precise statutory clarifications to resolve these systemic regulatory ambiguities.
Keywords: Metaverse; Virtual Digital Assets; Information Technology Act; Jurisdiction; Intellectual Property; Data Protection; Soft Law; Comparative Law
I. Introduction
The Madras High Court recently issued a significant ruling: it held that cryptocurrency qualifies as “property” capable of being held in trust under Indian law. The ruling arose from a dispute over frozen crypto assets following a major hack of a digital asset exchange. Its implications, however, extend well beyond that dispute; the decision signals that activity within digital worlds is beginning to carry the same legal weight as activity in the physical world.
The metaverse is not merely another website or application. It encompasses virtual real estate, NFTs, avatar-based trade and income generation, and even decentralised autonomous organisations, all operating within persistent online worlds. These spaces differ fundamentally from the earlier, static internet. Yet India’s existing laws — spanning jurisdiction, ownership, intellectual property, and data protection — were designed for a simpler digital era. As a result, considerable uncertainty persists over who owns what, how rights are enforced across borders, and who bears liability when things go wrong.
This paper argues that while India’s existing legal tools — the IT Act, VDA taxation, established and emerging intellectual property rules, and the new data protection framework — offer a partial solution, they remain insufficient. Rather than enacting a sweeping new metaverse-specific statute at this stage, India should prioritise closing the most significant gaps through clarificatory guidance on the application of existing rules, targeted amendments to address key loopholes, and new legislation only where genuinely required.
Section II maps the applicable Indian law. Section III examines comparative international approaches. Section IV identifies core regulatory gaps. Section V advances reform proposals, and Section VI concludes.
II. The Indian Legal Framework Applicable to the Metaverse Economy
A. Jurisdiction and Intermediary Liability
Section 75 of the Information Technology Act, 2000 extends the Act to any offence or contravention committed outside India by any person if the conduct involves a computer, computer system, or computer network located in India.1 This extraterritorial provision supplies a jurisdictional anchor for harms originating on foreign metaverse platforms that affect Indian users or infrastructure. Intermediary liability continues to be governed by Section 79 and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, as amended. Recent amendments addressing synthetically generated content impose labelling and due-diligence obligations that will apply to immersive platforms hosting user-generated virtual goods. The framework, however, was designed primarily for passive hosts rather than persistent virtual worlds in which platforms actively shape economic interactions.
B. Property Rights and Virtual Digital Assets
The Finance Act, 2022 introduced the statutory concept of Virtual Digital Assets (VDAs) into the Income-tax Act, expressly encompassing non-fungible tokens and other cryptographic tokens.2 Income from the transfer of a VDA is taxed at a flat rate of thirty per cent, accompanied by a one per cent tax deducted at source. In Rhutikumari v. Zanmai Labs Pvt. Ltd., the Madras High Court confirmed that cryptocurrency is property capable of beneficial ownership and of being held in trust.3 This judicial recognition strengthens the proprietary character of metaverse assets. It leaves unresolved, however, the status of purely platform-bound virtual land or in-world goods that exist solely within a closed ecosystem and are governed exclusively by end-user licence agreements. The distinction between true ownership and a contractual licence remains a critical fault line.
C. Intellectual Property and Personality Rights
The Trade Marks Act, 1999 and the Copyright Act, 1957 apply without requiring physical embodiment of the goods or works.4 Indian practitioners already file applications covering downloadable virtual goods and NFT-authenticated items. Personality rights have been extended by the Delhi High Court to unauthorised commercial use of an individual’s likeness across emerging media, including the metaverse. The absence of dedicated classification guidance for virtual goods nevertheless creates uncertainty for brand owners seeking consistent protection across physical and virtual markets. Comparative experience, notably the United States decision in Hermès International v. Rothschild concerning MetaBirkins NFTs, demonstrates that trademark law readily reaches virtual goods likely to cause consumer confusion.5 Indian courts are well positioned to adopt a similar approach once suitable cases arise.
D. Data Protection and Financial Regulation
The Digital Personal Data Protection Act, 2023, together with its Rules, establishes a consent-based regime for the processing of digital personal data.6 Immersive environments generate biometric, behavioural, and potentially neural data of heightened sensitivity. The Act’s technology-neutral drafting is capable of covering such processing, yet the practical application of notice, purpose limitation, and cross-border transfer rules to persistent virtual worlds remains untested. Parallel anti-money-laundering obligations under the Prevention of Money-Laundering Act require Virtual Digital Asset Service Providers to register with the Financial Intelligence Unit India and to implement know-your-customer and transaction-monitoring controls.7 These measures address financial integrity risks but do not resolve questions of consumer protection or unfair contractual terms in metaverse end-user agreements.
III. International and Comparative Approaches
No binding global treaty specifically regulates the metaverse economy. Soft-law and regional instruments nevertheless supply useful reference points. The European Commission’s Communication on Web 4.0 and virtual worlds articulates a values-based strategy emphasising interoperability, fundamental rights, and industrial competitiveness.8 Existing EU instruments — the Digital Services Act, the Digital Markets Act, the General Data Protection Regulation, and the Artificial Intelligence Act — are regarded as applicable to virtual worlds without the immediate need for a dedicated metaverse statute. The Council of Europe and the International Telecommunication Union have issued reports examining human-rights implications and technical standards for inclusive virtual environments.9 Comparative soft-law principles developed in several jurisdictions converge on privacy, security, and transparency while diverging on the explicit recognition of creators as distinct stakeholders. These instruments confirm that regulatory responses need not await the full maturation of the technology; adaptive application of existing frameworks, supplemented by targeted guidance, is the prevailing international approach.
IV. Critical Evaluation: Persistent Regulatory Gaps
Four structural gaps impede coherent regulation of the metaverse economy in India. First, jurisdiction remains uncertain in fully decentralised environments where no single server or corporate entity provides a clear territorial nexus. Section 75 of the Information Technology Act supplies a partial answer where an Indian computer resource is involved, yet offers limited assistance against purely foreign, distributed platforms that nevertheless serve Indian users. Second, the proprietary status of platform-bound virtual assets is unresolved. While the Madras High Court has recognised cryptocurrency as property, virtual land or items that exist solely by virtue of a platform’s terms of service continue to occupy an ambiguous space between contractual licence and transferable property right. Third, the enforceability of smart contracts and the allocation of liability among developers, deployers, and users of decentralised autonomous organisations lack statutory clarity. Fourth, consumer protection doctrines under the Consumer Protection Act, 2019 have not yet been systematically applied to immersive commercial environments in which users may lack meaningful bargaining power or clear disclosure of risks.10
These gaps do not render the existing framework unworkable. They do, however, generate legal uncertainty that deters legitimate investment, complicates enforcement, and leaves individual users exposed. A purely reactive, case-by-case approach risks inconsistent outcomes and forum shopping. At the same time, enactment of a comprehensive “Metaverse Act” at the present stage of technological development would risk obsolescence and regulatory overreach. The preferable path is incremental clarification through guidelines, judicial development, and selective legislative amendment.
V. Proposals for Reform
It is submitted that India should pursue a three-pronged strategy. First, the Ministry of Electronics and Information Technology, in consultation with the Reserve Bank of India and the Securities and Exchange Board of India, should issue joint guidance clarifying the application of existing statutes to metaverse platforms, virtual assets, and smart contracts. Such guidance should address the classification of virtual goods under the Trade Marks Act, the proprietary character of platform-bound assets, and the due diligence expectations of intermediaries operating immersive environments. Second, the Central Government should consider targeted amendments to the Information Technology Act or the enactment of model rules that recognise cryptographic proof as admissible evidence and that facilitate interim relief against foreign platforms serving Indian users. Third, specialised capacity should be developed within existing adjudicatory bodies, or a dedicated digital disputes mechanism should be explored, to handle the technical complexity of metaverse-related claims. Internationally, India should participate actively in relevant international workstreams on virtual world standards and crypto-asset reporting, thereby contributing to the emergence of interoperable norms while protecting domestic regulatory space.
VI. Conclusion
The metaverse is not a lawless zone. Indian law already addresses jurisdiction, property recognition, intellectual property protection, taxation, data protection, and anti-money-laundering oversight. These tools, however, were designed for an earlier digital architecture and require adaptive interpretation and selective refinement if they are to govern persistent, tokenised, and cross-border virtual worlds effectively. The judicial recognition of cryptocurrency as property marks an important step. Further progress depends on coordinated regulatory guidance, incremental legislative clarification, and sustained engagement with international standard-setting processes. A measured, technology-neutral approach that prioritises legal certainty for both users and innovators will enable India to regulate the metaverse economy without stifling the very innovation it seeks to govern.
Note(S):
1. Information Technology Act, No. 21 of 2000, § 75 (India).
2. Income-tax Act, No. 43 of 1961, § 2(47A) (India) (as amended by the Finance Act, 2022).
3. Rhutikumari v. Zanmai Labs Pvt. Ltd., 2025 SCC OnLine Mad 9290 (Mad.).
4. Trade Marks Act, No. 47 of 1999 (India); Copyright Act, No. 14 of 1957 (India).
5. Hermès Int’l v. Rothschild, No. 1:22-cv-00384 (S.D.N.Y. 2023).
6. Digital Personal Data Protection Act, No. 22 of 2023 (India); Digital Personal Data Protection Rules, 2025.
7. Prevention of Money-Laundering Act, No. 15 of 2003 (India) (as amended).
8. European Commission, An EU initiative on Web 4.0 and virtual worlds, COM(2023) 442 final (11 July 2023).
9. See ITU Focus Group on Metaverse (FG-MV), Technical Report on Legal Framework; Council of Europe & IEEE reports on the metaverse and human rights.
10. Consumer Protection Act, No. 35 of 2019 (India); Indian Contract Act, No. 9 of 1872.
Reference(S):
Cases
Hermès Int’l v. Rothschild, No. 1:22-cv-00384 (S.D.N.Y. 2023).
Rhutikumari v. Zanmai Labs Pvt. Ltd., 2025 SCC OnLine Mad 9290 (Mad.).
Statutes
Copyright Act, No. 14 of 1957 (India).
Digital Personal Data Protection Act, No. 22 of 2023 (India).
Digital Personal Data Protection Rules, 2025 (India).
Income-tax Act, No. 43 of 1961, § 2(47A) (India).
Information Technology Act, No. 21 of 2000 (India).
Prevention of Money-Laundering Act, No. 15 of 2003 (India).
Trade Marks Act, No. 47 of 1999 (India).
Other Authorities
Council of Europe & IEEE, The Metaverse and its Impact on Human Rights, the Rule of Law, and Democracy.
European Commission, An EU initiative on Web 4.0 and virtual worlds, COM(2023) 442 final (11 July 2023).
ITU Focus Group on Metaverse (FG-MV), Technical Report on Legal Framework.
