Decentralized Finance, commonly known as DeFi, is changing how people think about money, banking, and financial freedom. DeFi uses blockchain technology to allow people to lend, borrow, trade, and earn interest directly with each other, without relying on traditional banks. This shift is about control, transparency, and global access to finance, enabled by smart contracts on blockchain networks like Ethereum. Smart contracts are automated programs that execute transactions when certain conditions are met, eliminating the need for a middleman.
As DeFi grows, governments and tax authorities are paying close attention to how these activities are taxed and reported. DeFi offers speed, transparency, and global accessibility, with transactions happening in minutes and records public on the blockchain. Common DeFi activities include lending crypto assets to earn interest, borrowing without traditional credit checks, trading on decentralized exchanges, and earning rewards through staking or liquidity pools.
Tax authorities generally classify DeFi earnings as either income or capital gains, depending on frequency, intent, and activity. Gas fees can be added to the cost basis, reducing taxable gains; for example, buying crypto for ₹100,000 and paying ₹5,000 in gas, then selling at ₹120,000. Under CRA crypto tax guidelines, DeFi transactions are not exempt because they occur on decentralized platforms, and individuals must maintain records and report taxable events accurately. Keeping thorough transaction records and understanding market values, while seeking professional guidance, helps navigate DeFi tax obligations in an evolving regulatory landscape.
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