According to a report from The Economic Times, India is looking to extend its crypto taxations to include gains made from decentralized finance (DeFi) activities.
20% tax on DeFi
The report, citing people familiar with the matter, said that the country’s tax department was looking at how it could impose a 20% tax on the interest earned by Indians from crypto platforms that aren’t based in the country.
If this plan goes through, Indians would now have to pay taxes on earnings from deposits or trading activities in DeFi.
India’s Central Board of Direct Taxes (CBDT) has reportedly been talking to tax experts on how it can implement this. There are also indications that the department is considering whether such transactions should also attract an equalization levy.
According to one of the anonymous sources, the government could be looking to withdraw these taxes from the source, especially in cases where one of those involved didn’t submit their PAN card details.
The founder of tax advisory firm Transaction Square Girish Vanwari said,
“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.”
DeFi has become one of the most popular ways for crypto investors to earn passively by borrowing or lending money to other users. However, the decentralized nature of this space might prove to be a stumbling block in the implementation of this new proposal.
Indians turn to DeFi.
Most Indian crypto investors have turned to DeFi platforms after the government recently imposed a 30% taxation on all crypto gains.
The draconian taxation led to a fall in the trading volumes of centralized crypto exchanges based in the country. Also, it led to the biggest exchange in the country, WazirX, changing base to Dubai.
The tax law doesn’t allow for deductions on losses which means even the most profitable investors will have their profit margin affected.
Due to this, Indian crypto investors are now focusing on DeFi platforms to help them retain most of their crypto earnings.
But investors are more concerned about the 1% TDS, which will come into effect this month. Many industry stakeholders have stated that such taxes could affect the market’s liquidity, which would affect the whole ecosystem.