TDS on Crypto

The provision of TDS at 1% charged on payments made on transfers of virtual assets was introduced by Finance Minister Nirmala Sitharaman in Budget 2022.

To be effective on July 1st, the Central Board of Direct Taxes (CBDT) has released comprehensive instructions on the levy of tax deducted at source (TDS) on virtual digital assets (VDA) or crypto assets. It has laid forth the deadlines that parties to a virtual digital asset transaction must follow in order to disclose the transaction to the tax authority, as well as the date of the transaction and the method of payment.

In the Union Budget 2022, Finance Minister Nirmala Sitharaman included a measure imposing a 1% tax at source on payments made for the transfer of virtual assets. Additionally, a 30% tax on virtual assets, such as bitcoin and non-fungible tokens, or NFTs, was announced.

“The new section (Section 194S) requires a person to deduct an amount equivalent to 1% of any amount paid to a resident as compensation for the transfer of a virtual digital asset (VDA) as income tax on that amount. The tax deduction must be made at the time the resident’s account is credited with the money or at the time of payment, whichever comes first, according to a statement from the CBDT.

Will the tax be subtracted at the buyer’s end and the seller’s end?

According to CBDT, the seller will not be obligated to deduct tax on the same transaction if the buyer has already done so in accordance with Section 194S of the Income Tax Act. The seller may request an assurance from the buyer regarding the tax deduction in order to ensure proper implementation.

The central government must receive payment of any amount deducted under section 194S within 30 days after the end of the month in which the deduction was made. The new regulations provide that the tax deductor must provide a TDS certificate to the payee within 15 days of the deadline for reporting the tax to the government.

Regarding Exchange-Based Transactions

It said that in such a case, the Exchange may deduct tax on transactions made through any exchange. “Implementing this condition presents a practical challenge if the transaction is made through an Exchange. It is made clear that in this circumstance, as an alternative, tax may be deducted by the Exchange, in order to handle this practical issue and remove difficulty, the CBDT said.

It was also stated that the Exchange must keep a record of all transactions showing the deduction of 1% of consideration for every VDA to VDA trade.

What Situations Do Not Require Deduction?

The consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed Rs 50,000 during the financial year, according to the CBDT, or by any person other than a specified person and the value or aggregate value of such consideration does not exceed Rs 10,000 during the financial year, according to the CBDT.

50,000 or 10,000 rupee limit computation

According to the CBDT notification, the obligation to withhold tax under Section 194S of the Act only applies when the value or aggregate of the consideration for transfer of VDA exceeds Rs 50,000 during the financial year in cases where the specified person is paying the consideration and Rs 10,000 in all other cases.

According to CBDT, the calculation of consideration for transfer of VDA triggering deduction under Section 194S of the Act shall be counted beginning on April 1, 2022. This is because the threshold of Rs 50,000 (or Rs 10,000) is with respect to the financial year.

“The CBDT stated: “The provisions of section 194S of the Act shall apply on any sum, representing consideration for transfer of VDA, credited or paid on or after July1, 2022, if the value or aggregate value of the consideration for transfer of VDA payable by a person exceeds fifty thousand rupees (or ten thousand rupees) during the financial year 2022-23 (including the period up to the 30th June 2022).”

It was also stated that since the Section 194S of the Act applies at the time that any sum representing consideration for the transfer of VDA is credited or paid (whichever occurs first), any sum credited or paid prior to July 1, 2022, would not be eligible for a tax deduction under Section 194S of the Act.

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