India intends to levy a 20% tax on DeFi transactions

The Central Board of Direct Taxes (CBDT) of India intends to charge a 20% tax on interest received from investments in decentralized finance (DeFi). The Economic Times, a local news outlet, reported the development on Tuesday, citing two persons with knowledge of the situation.

According to the article, the board would levy the tax on crypto money made by Indian nationals using DeFi platforms operating outside the country.

CBDT is also considering implementing a 5% equalization levy on certain transactions. The fee will be levied if one or both of the persons involved in the transaction are not Indian residents and have not submitted their permanent account number (PAN) card data.

The DeFi market has mostly attracted Indian investors seeking greater interest returns on their assets, similar to nations such as the United States. DeFi protocols compete with the existing financial system by offering services such as borrowing, lending, and insurance in a more efficient and decentralized manner (without the need for intermediaries).

However, levying taxes on DeFi interest is a pretty challenging task. Traditional bitcoin exchanges, where tax authorities may obtain information from platform operators, do not have the data.

As a result, India’s CBDT is claimed to be consulting with a number of tax specialists in order to devise methods for efficiently imposing these restrictions on the industry.

Regulators in India have recently imposed strict controls in the form of tax charges on cryptocurrency investors and providers in the nation.

During her 2022-2023 budget statement in February, the country’s Finance Minister Nirmala Sitaraman released the first guidelines. She revealed that bitcoin investors in India will be subject to a 30% capital gain tax, with a 1% tax deducted at the source (TDS) on cryptocurrency transactions.

As previously stated, the 30% tax went into force on April 1, with the 1% TDS beginning on July 1. The aforementioned DeFi tax legislation in India are still in the works and may not be implemented until later this year.

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