India Central Board of Direct Tax (CBDT) now aims to charge 20% tax on interest received from investments in decentralised finance. After the government has imposed a 30% tax on returns or profits generated by virtual digital assets. This year from 1 April, a 1% TDS will be charged on all transactions.
The DeFi space has mostly attracted Indian investors seeking greater interest yields on their assets, similar to countries such as the United States. DeFi protocols compete with the traditional financial system by offering services such as borrowing, lending, and insurance in a more efficient and decentralised manner (without the need for intermediaries).
In addition, the government may apply a 5% equalisation levy tax on foreign-owned e-commerce firms that serve Indian residents.
The Central Board of Direct Tax has contacted certain tax specialists to see how interest from cryptocurrency could be taxed.
Girish Vanwari, founder of tax advisory Transaction Square stated that:
“For the tax department tracking of these transactions is very crucial. The government could slap a 5% additional tax in the form of equalisation levy on any transaction where one of the persons is not based in India and has not submitted their PAN card or other tax details.”
Leader of International Tax practice firm AKM Global, Amit Maheshwari stated:
“The income-tax department is yet to issue specific guidance on the same since this is an unregulated space as of now.”
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