The Indian government doesn’t seem willing to let the Indian crypto-verse have a free hand. After taxing earnings from crypto transactions, DeFi platforms are now on their radar.
People with knowledge of the situation say that the taxmen are trying to determine how many Indians are earning interest by DeFi lending their cryptocurrency holdings. Most of these platforms are outside of the country, so it will be a difficult task for the government.
To curb such transactions by Indians, the tax department is considering imposing a TDS and an equalization levy on such transactions.
The development came when the financial ecosystem built on blockchain applications swiftly gained pace. Many Indians have been taking advantage of decentralized finance (DeFi), which can be used for remitting money, purchasing insurance, or borrowing money against cryptocurrencies.
If either the lender or the receiver in the transaction does not present their PAN card information, the government plans to charge 20% TDS, the source added.
A War Against Crypto
The government has already imposed a 30% tax on virtual digital asset returns or earnings. Every transaction will be subject to a 1% TDS starting from April.
This has led to dollar trade volume plummeting by 72% on WazirX, 59% on ZebPay, 52% on CoinDCX, and 41% on BitBns. It has also been revealed that conventional payment methods like UPI and MobiKwik have stopped supporting bitcoin exchanges.
As a result of these events, many cryptocurrency day traders have become disappointed.
Nischal Shetty, the founder of WazirX, tweeted: “Countries that do not recognize tech innovation will see an enormous brain drain. Location is no longer relevant in today’s world. In the end, “talent goes where it is appreciated!”. He, too, has left India for Dubai.
Tracking of Crypto Transactions
The Indian government is finding the possibility of charging an equalization levy on certain transactions. It is vital for the tax authorities to keep track of these transactions, it is vital.
According to Girish Vanwari, founder of tax consulting Transaction Square, any transaction where one of the parties is not in India and has not provided their PAN card or other tax details could be subject to an additional 5% equalization penalty.
The CBDT has reached out to tax specialists in this area in order to figure out how interest income from cryptocurrencies could be brought under the tax lense.
Amit Maheshwari, a tax partner at tax consultancy firm AKM Global, said the income-tax department has yet to offer detailed advice on the matter because this is an uncontrolled field at the moment.
As a result, many Indians have started depositing bitcoins with the platform in order to earn interest.
For non-residents, the interest withholding rate is 20% plus applicable surcharge and cess, and 10% plus applicable surcharge and cess for residents.
DeFi Continues to Offer More Opportunities
Several investors are looking at ways to reduce tax on their digital assets, which is prompting many crypto companies to release new solutions.
Cryptocurrencies and smart contracts are the foundation of DeFi, which makes it possible for decentralized applications (dApps) to conduct transactions on the network. Smart contracts execute financial transactions when certain conditions are met.
Network transactions are made up of the following:
- You can earn interest by lending out a coin.
- Acceptance of a loan amount in a blink of an eye.
- Without the use of a middleman, deals can be carried out.
- Cryptocurrency can be deposited to generate high-interest rates.
- Buying futures and other derivatives.
Tokens, DeFi mining (liquidity mining), tokens, yield farming (an investment technique), digital wallets, staking, trading, borrowing, and smart contracts that encourage saving are some of the most regularly used dapps and services. Because the DeFi code is open source, anyone can customize it and create their own dapps with it.