How to Report DeFi Yield in India: Complete Tax Guide for 2024

Understanding DeFi Yield and Tax Obligations in India

Decentralized Finance (DeFi) has revolutionized how Indians earn passive income through crypto staking, liquidity mining, and lending. But with rewards come tax responsibilities. Under India’s Income Tax Act 1961, all DeFi yields—whether in tokens or interest—are taxable income. Failure to report accurately can trigger penalties of 50-200% of evaded tax plus interest. This guide simplifies compliance for Indian crypto investors navigating this complex landscape.

Is DeFi Yield Taxable in India?

Yes. The Income Tax Department treats DeFi earnings as taxable income based on these principles:

• Income from Other Sources: Most yields (staking rewards, interest) fall here, taxed at your slab rate (up to 30%)
• Business Income: If actively trading or providing liquidity as a profession, taxed per slab rates with expense deductions
• No TDS: Unlike crypto exchanges, DeFi protocols don’t deduct tax at source

CBDT’s March 2022 guidelines confirm crypto rewards are taxable upon receipt, regardless of conversion to INR.

Step-by-Step Guide to Reporting DeFi Yield

1. Calculate Your Earnings

• Track every yield event (date, token amount, protocol)
• Convert to INR using fair market value at receipt time (e.g., WazirX/CoinMarketCap rates)

2. Classify Income Type

• Casual investors: Report under “Income from Other Sources” (ITR Form Schedule OS)
• Professional traders: File as “Business Income” (ITR-3/ITR-4 with profit/loss statements)

3. File Correct ITR Form

• ITR-2: For individuals with capital gains + yield under “Other Income”
• ITR-3: Mandatory if reporting as business income
• Mention “Virtual Digital Asset Income” in schedule VDA

4. Pay Advance Tax (If Applicable)

If tax liability exceeds ₹10,000/year, pay in installments:

• 15 June: 15% of liability
• 15 Sept: 45% total
• 15 Dec: 75% total
• 15 March: 100%

Essential Record-Keeping Practices

Maintain these records for 6 years:

• Wallet addresses and transaction IDs for all yield receipts
• Screenshots of DeFi platform dashboards showing rewards
• Dated exchange rate proofs (e.g., CoinGecko historical data)
• Bank statements if converting crypto to INR

Penalties for Non-Compliance

• ₹5,000 for missed ITR filing deadline (Section 234F)
• 1% monthly interest on unpaid tax (Section 234B/C)
• 50-200% penalty for concealment (Section 271(1)(c))
• Prosecution risk for evasion over ₹25 lakh

Frequently Asked Questions (FAQ)

Q1: Is unstaked DeFi yield taxable if I haven’t sold the tokens?

A: Yes. Tax applies when you receive tokens—not when sold. Value is locked at receipt date’s market price.

Q2: Can I offset DeFi losses against yield income?

A: Only if classified as business income. “Other Source” losses can’t offset other income. Carry forward business losses for 8 years.

Q3: How do I report yield from anonymous DeFi platforms?

A: Maintain your own transaction logs. Use blockchain explorers like Etherscan to validate records. Report gross income in INR equivalents.

Q4: Are stablecoin yields taxed differently?

A: No. All yields—whether in ETH, stablecoins, or governance tokens—are taxed as income at receipt value.

Staying Compliant in 2024

With India’s crypto tax clarity evolving, meticulous reporting of DeFi yield is non-negotiable. Use crypto tax software like KoinX or CoinTracker for automated calculations, and consult a chartered accountant specializing in virtual assets. Proactive compliance avoids costly penalties while legitimizing your crypto investments.