Introduction
Web3 and Decentralised Finance (DeFi) are no longer niche terms reserved for cryptocurrency enthusiasts. They increasingly feature in business discussions as new modes of investment, financing, treasury management and transaction execution — all driven by blockchain, smart contracts and decentralised protocols. For Indian businesses and accounting firms, this shift poses fresh opportunities as well as novel tax, regulatory, accounting and audit-risks. This article offers a practical overview of how Indian enterprises should view DeFi through the lens of tax/regulation, accounting treatment and audit readiness.
The Indian Regulatory & Tax Landscape for Digital Assets
In India the terminology “Virtual Digital Assets” (VDAs) under the Central Board of Direct Taxes (CBDT) regime covers cryptocurrencies, tokens, NFTs and akin digital instruments. Cointelegraph+2TaxTMI+2 The Income-tax Act now mandates a flat 30% tax on gains from VDA transfers and a 1 % Tax Deducted at Source (TDS) on many VDA transfers. KYC Hub+2Cointelegraph+2 Beyond taxation, the CBDT in 2025 has issued a detailed questionnaire to crypto exchanges and service providers seeking feedback on the existing VDA framework, and whether a new comprehensive law is needed. The Economic Times+1 Meanwhile, the Securities and Exchange Board of India (SEBI) has expressed willingness to oversee certain crypto activities — in contrast to the Reserve Bank of India’s caution about stablecoins and systemic risks. Reuters For Indian businesses and CA firms this means that DeFi transactions may fall under multiple regulatory umbrellas: tax, securities, AML/KYC, and accounting-standards.
Why DeFi Matters for Businesses & CA Firms
DeFi offers features such as decentralised lending/borrowing, liquidity-pool participation, yield-farming, and staking. For businesses, this can translate into treasury tools, investment options, new financing channels and even revenue-streams. At the same time, the blurred lines of ownership, valuation, cross-chain movement and decentralised counterparties create significant risks: tax non-compliance, accounting mis-treatment, audit gaps, regulatory enforcement. As a consequence, CA firms advising clients must be alert to these developments, offer robust guidance and ensure internal control frameworks adjust to the Web3 world.
Accounting & Audit Considerations for DeFi Activities
Accounting for DeFi is complex because traditional frameworks (e.g., Ind AS 109, Ind AS 32) may not neatly fit. For example, liquidity-pool tokens, staking rewards, yield-farming income and smart-contract income demand fair-value measurement, classification decisions, asset vs liability distinction and disclosure of risks. External guides note that swaps, liquidity-pool participation and yield farming can trigger realised gains or losses, impermanent losses, and require valuation at fair value when control transfers. KoinX+1 Indian practitioners should apply appropriate standards under Ind AS and ensure disclosures align with guidance such as KPMG’s Ind AS Checklist. KPMG Assets+1 Audit firms need to evaluate whether client systems capture blockchain transactions, whether smart contract-based flows have audit-trail reliability, and whether treasury staff understand the risks of decentralised counterparties.
Tax & Compliance Challenges in a DeFi Environment
From a tax perspective Indian businesses involved in DeFi must be mindful of several triggers: (a) Realisation events (e.g., swap of one token for another) can trigger capital-gains under Section 115BBH; (b) Staking rewards or yield-farming income may qualify as business or other income and attract tax accordingly; (c) TDS obligations under Section 194S apply in many VDA transfers; (d) Valuation and cost-basis issues can affect tax computation. As the CBDT’s questionnaire highlighted, issues like identifying counter-party residency, fair-value calculation of tokens, set-off of losses and data-reporting are under regulatory scrutiny. The Times of India+1 For compliance teams, capturing the full lifecycle of DeFi transactions is vital — from initial deposit in a liquidity pool to yield-distribution and eventual withdrawal. Failure to do so may trigger tax risk, penalties and enhanced scrutiny (the CBDT has launched investigations into unaccounted income via VDAs). The Times of India
Risk of Misuse & Regulatory Vigilance
DeFi also poses heightened risk of misuse: cross-border, peer-to-peer transactions, anonymity, liquidity shifts offshore, and weak counter-party identities. The Indian policy-makers remain concerned that offshore decentralised platforms may escape domestic oversight, creating tax leakages and AML risks. The Economic Times+1 Businesses must therefore ensure robust KYC/AML frameworks, maintain transparent transaction logs, and engage qualified accounting and audit teams to validate DeFi-related flows. For CA firms, advising on internal control, counter-party risk and regulatory reconciliation becomes an essential value-add.
Practical Steps for Indian Businesses & CA Firms
Indian businesses venturing into DeFi should adopt the following pragmatic actions: implement systems that capture token flows (deposits, rewards, withdrawals), document smart-contract terms, maintain cost-basis and timestamp records, apply conservative valuations and seek professional advice before classifying assets. CA firms should ensure clients understand the nexus of tax, accounting and regulatory risk in Web3, integrate DeFi flows into internal audit and compliance frameworks, and liaise with tax teams to ensure correct treatment of income, gains, TDS, and disclosure.
Looking Ahead
Given the pace of innovation and regulatory evolution, Indian businesses should view DeFi as a strategic frontier—not only for growth but also for compliance-resilience. As India’s institutional frameworks catch up, the role of the Chartered Accountant will expand from traditional bookkeeping and audit to advising on blockchain-enabled business models, token-economics, and decentralised ecosystem risk.
Conclusion
Web3/DeFi presents both promise and complexity. For Indian enterprises and CA firms alike, the key is not to shy away but to engage with rigour: ensure that tax obligations are met, accounting treatments are sound, audit trails are robust, and regulatory risks are managed. Seen through that lens, DeFi need not be a wild frontier — it can be an organised frontier that aligns with governance, transparency and growth.
