The tax department is planning to impose additional tax deducted at source (TDS) and equalisation levies on Indians who earn interest on cryptocurrencies from platforms outside the country, according to a report.
"For the tax department tracking of these transactions is very crucial. The government could slap a 5 percent 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," The Economic Times quoted Girish Vanwari, founder of tax advisory firm Transaction Square, as saying.
In case of non-residents, the withholding on interest is at 20 percent plus applicable surcharge and cess as per the income tax act or the treaty, whichever is more beneficial, and 10 percent plus applicable surcharge and cess for residents, he added.
Growing Popularity of DeFi
This comes amid the growing popularity of decentralised finance (DeFi), which is the financial mechanism used by blockchain applications. DeFi can be used to transfer money, buying insurance and even borrowing money against crypto assets.
Several people have started using the platform to earn interest by depositing cryptocurrencies for a certain period.
The Central Board of Direct Taxes (CBDT) is in talks with tax experts regarding how interest income generated from cryptocurrencies can come under tax regulations, as per The Economic Times.
The government has also levied 30 percent tax on returns generated from virtual digital assets. From 1 April, TDS of 1 percent will also be charged on all transactions in this regard.
Amit Maheshwari, tax partner at AKM Global, said that the income tax department was yet to issue specific guidelines in this regard as it is currently an unregulated space.
(With inputs from The Economic Times.)