India is seeking new ways to tax citizens by levying charges on crypto income derived outside of the country.
The tax department is mulling over the option to impose additional taxes on cryptocurrency and interest-yielding DeFi transactions.
According to the Economic Times, the tax department is considering imposing a 20% tax deducted at source on such transactions. In particular, the new deductions will apply in instances where one party is not a resident in India or has not submitted their permanent account number (PAN) card details.
More than 15 million turn to DeFi
Indians have turned to DeFi in recent years to reap the benefits of settling transactions, borrowing with ease, and depositing and lending funds in exchange for earning yields.
Over 15 million have turned to DeFi products and offerings as a way to hedge their wealth and save on taxes.
“For the tax department tracking of these transactions is very crucial. The government could slap a 5% additional tax in the form of equalization levy or on any transaction where one of the persons is not based in India,” said Girish Vanwari, the founder of Transaction Square, a tax advisory firm.
“In the 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,” said Amit Maheshwari, senior partner at AKM Global.
India tax plans draw criticism
India has drawn criticism with a plan to impose a 30% rate on income from cryptocurrency investments, plus a 1% tax deductible at source (TDS) on trades above a certain amount. The proposals are scheduled to come into effect on June 1.
Manhar Garegrat of CoinDCX notes that the 1% TDS will mean that “there will be no liquidity left in the markets” because trades will not be executed efficiently on the platform.
“The way the tax has been worked out will lead to people moving out of the country,” says Dinesh Kanabar, CEO of Dhruva Advisors. Apart from the flight of capital out of the country, the taxations have been criticized as “going against the fair market prices for those instruments and can push trading underground.”