The tax department is looking to slap additional tax deducted at source (TDS) and equalisation levy on such transactions and interest income generated by Indians, they said.
The move comes at a time when decentralised finance (DeFi), which is the financial ecosystem built on blockchain applications and can be used for remitting money or buying insurance or even borrowing money against cryptocurrencies, is fast gaining traction, and many Indians have now taken to earning interest income by depositing cryptocurrencies for a fixed period of time with the platform.
The government is looking to levy 20% TDS on these transactions, especially when one of the persons who has entered the contract has not submitted their PAN card details, a person aware of the development said.
CBDT has reached out to some tax experts in this regard to figure out how interest income from cryptocurrencies could be brought under the tax lens.
The government recently introduced
30% tax on returns or profits made from virtual digital assets. From April this year, 1% TDS is also applicable on every transaction.
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The government is also exploring whether these transactions could also attract equalisation levy.
“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,” said Girish Vanwari, founder of tax advisory Transaction Square.
Many Indians have taken to earning interest income by depositing cryptocurrencies for a fixed period with the platform.
“In case of non-residents, the withholding on interest is at 20% plus applicable surcharge and cess as per the income-tax act or the treaty, whichever is more beneficial and 10% plus applicable surcharge and cess for residents.
The income-tax department is yet to issue specific guidance on the same since this is an unregulated space as of now,” said Amit Maheshwari, tax partner at tax consultancy firm AKM Global.
Many crypto companies are now introducing new products as several investors explore ways to save tax on their digital assets, ET wrote in February.
