The Indian tax agency is considering charging extra taxes on cryptocurrencies and interest-bearing DeFi transactions.
The tax administration is proposing to implement a 20% tax deducted at source on such transactions, according to the Economic Times. The new deductions will be applicable in particular where one party is not a resident of India or has not provided their permanent account number (PAN) card details.
In recent years, Indians have turned to DeFi to gain the advantages of easy transaction settlement, simple borrowing, and depositing and lending funds in exchange for returns.
Over 15 million customers have used DeFi products and services to protect their assets and save money on taxes.
“Tracking these transactions is critical for the tax agency. The government might impose a 5% extra tax in the form of an equalisation charge on any transaction where one of the parties is not located in India,” said Girish Vanwari, the founder of Transaction Square, a tax consulting business.
“In the case of non-residents, the withholding on interest is set at 20% plus relevant surcharge and cess as per the income-tax legislation or the treaty, whichever is more favourable,” said Amit Maheshwari, senior partner at AKM Global.
India has been criticised for proposing a 30% tax on revenues from cryptocurrency investments, with a 1% tax deducted at source (TDS) on transactions above a specific amount. The plans are set to take effect on June 1.
According to Manhar Garegrat of CoinDCX, the 1% TDS would result in “no liquidity left in the markets” since deals would not be performed quickly on the platform.
“The way the tax has been designed would result in individuals leaving the nation,” says Dinesh Kanabar, CEO of Dhruva Advisors. Apart from causing capital flight, the taxes have been criticised for “going against reasonable market values for certain securities and potentially forcing trade underground.”
