The union budget for 2022-23 had announced a 1% TDS on all crypto transactions starting July 1 and a 30% tax on income from cryptocurrencies from the next financial year.

On June 22, India's FinanceMinistry Nirmala Sitharaman has given guidelines to explain the detailing mechanism for the contentious and soon-to-be-implemented 1% tax deducted at source (TDS) provision.

According to the new rules, exchanges will have to deduct tax from the crypto buyer’s side in a transaction. This tax must be paid to the exchange in the span of 30 days of the month's end during which the deduction was made.

The notification issued by the government also clarified the timeline that parties need to report a virtual digital asset (VDA) transaction. The government also specified the format to report the transaction. A new form will be released titled 26QE to play the dual role of a statement and a receipt.

Clients who claim a refund on their taxes from the government ought to show a TDS certificate issued to the payee within 15 days from the due date of reporting the tax, the government has explained.

The tax would have to be paid in advance in situations where the payment for the transfer of a digital asset is in kind.

The individuals will also have to keep up with details like the date of transfer of  VDA, the value of consideration, and mode of consideration.

Earlier, the industry stakeholders have made several requests to the government to bring down the TDS rate from 1% to 0.01% or 0.05%, yet without much any result. This had left the industry in dark, shrinking trade volumes.

Until the Central Board of Direct Taxes (CBDT), on Wednesday, gave clarification on how firms could follow the revised tax. The recent move has brought back a ray of hope that the government may come up with more such clarifications, as opposed to the chance of a complete ban earlier.

“Investors can now plan their trades with clarity…believe that the government will monitor the implementation and consider reducing the TDS percentage to create a healthy and compliant ecosystem,” Vikram Subburaj, CEO of crypto platform Giottus, said.

In case the transactions are proved to be loss making, TDS will be refunded but the inability to offset crypto losses against gains will remain the same, according to Edul Patel, co-founder of Mudrex.

Payment for the cryptos’ transfer done in kind or exchange for another digital asset also draws in TDS, adding to the total, the circular said.

On the other hand, the government has excluded transactions of up to Rs 50,000 ($640) in a year from the rule of 1% TDS for specific categories of taxpayers.

Whether the TDS provision applies to foreign crypto trading platforms isn’t clear at this point. CBDT is likely to issue a FAQ document to clear any further confusion. 

Joyashree Dey

CBW - External Analyst

INDIA