SUMMARY
The tax department has its eyes on Indians earning interest on their cryptocurrencies from platforms outside India
The department is looking to bring in additional tax deducted at source (TDS) and equalisation levy on such transactions
The government is reportedly planning to impose 20% TDS on these transactions
After the introduction of the 30% tax rule for virtual digital assets (VDA) transactions, the government is now looking at introducing taxes for decentralised finance (DeFi).
The tax department has its eyes on Indians earning interest on their cryptocurrencies from platforms outside India. It is looking to bring in additional tax deducted at source (TDS) and equalisation levy on such transactions and interest income, ET reported.
At a time when Indians are moving towards decentralised finance (DeFi) platforms, many are enjoying the benefit of earning interest income by depositing cryptocurrencies for a fixed period of time with such platforms.
The government is reportedly planning to impose 20% TDS on these transactions, especially when one of the persons involved in the transaction has not submitted their PAN card details. Further, the Central Board of Direct Taxes (CBDT) is talking to tax experts to understand how tax can be levied on interest income from cryptocurrencies.
Considerably, India had been ranked 6th in the Global DeFi Index last year, based on the metrics such as on-chain DeFi value received, on-chain number of DeFi deposits and on-chain retail DeFi value received, according to a Chainalysis report.
On April 1, the new tax rule came into effect that mandates a tax rate as high as 30% for profits from crypto transactions. As a result, leading Indian crypto exchanges are struggling with a decline in trading volume.
Moreover, the payment mechanism issue has also hit the industry after the Unified Payment Interface (UPI) fiasco started following an announcement of Coinbase that the exchange would support UPI payments.
Soon after Coinbase’s announcement, NPCI issued a statement on the subject saying, “With reference to some media reports around the purchase of cryptocurrencies using UPI, National Payments Corporation of India (NPCI) would like to clarify that we are not aware of any crypto exchange using UPI.”
As the statement came out, all major crypto exchanges in India also disabled INR deposits via UPI. In addition, major Indian banks also stopped all netbanking options for crypto transactions. However, since then the situation has not improved as there has been no official statements either from RBI or NPCI on the issue.
Meanwhile, Finance Minister Nirmala Sitharaman said recently that India will not rush into any decision over cryptocurrencies and other virtual digital assets, but will take an informed decision.
Speaking on blockchain, she said it has the potential to contribute positively to the economy, however it could also be manipulated and used for money laundering or terror financing activities.
