India’s Central Board of Direct Taxes (CBDT) is planning on levying a 20% tax on interest earned from investing in decentralized finance (DeFi). Local news agency, the Economic Times, reported the development on Tuesday, citing two people with knowledge of the matter.
According to the report, the board will impose the said tax on crypto income generated by Indian residents from DeFi platforms operating outside the country.
CBDT is also looking at the possibility of imposing an additional 5% equalization levy on these transactions. The levy would apply in cases where one or both parties carrying out the transaction are not Indian residents and haven’t submitted their permanent account number (PAN) card details.
Similar to countries like the United States, the DeFi space has largely attracted Indian investors seeking higher interest yields on their assets. DeFi protocols rival the traditional financial system by providing services including borrowing, lending and insurance, in a more effective and decentralized manner (without the need for intermediaries).
However, imposing taxes on interest earned from DeFi is relatively difficult. The data is not available on traditional cryptocurrency exchanges, where tax regulators can collect information from platform operators.
Hence, India’s CBDT is said to be in consultation with multiple tax experts to come up with ways on which these rules can be effectively imposed on the sector.
More Tax Laws for Crypto in India
Recently, regulators in India have been implementing stringent regulations in the form of tax levies on crypto investors and providers in the country.
In February, the country’s Finance Minister Nirmala Sitaraman revealed the earliest rules during her 2022-2023 budget speech. She confirmed that crypto investors in India would become subject to 30% capital gain tax with 1% tax deducted at source (TDS) on cryptocurrency transactions.
As Coinfomania reported the 30% tax took effect on April 1 with the 1% TDS to commence from July 1. The said DeFi tax laws in India are still in the works and may not come into contention until later this year.
