The union budget for 2022-23 introduced a new section called 194S in the Income-Tax Act, 1962 which implies 1% TDS on all crypto transactions starting July 1 and a 30% tax on income from cryptocurrencies from the next financial year. In a nutshell, if you are buying any Virtual Digital Assets (VDA), exchanges will have to deduct and withhold 1% of the transaction value from your side as tax deducted at source (TDS). This withheld Tax should be further paid to the Government.

Before we clarify more about the new TDS rule, here is a token of good news for you: The Central Board of Direct Taxes (CBDT) has explained that when somebody is purchasing Crypto through an Exchange (even on account of P2P transactions), Tax can be deducted under segment 194S by the Exchange.

To help you understand these guidelines better, here are a few FAQs:

   • Who is required to deduct tax when the transfer of VDA is taking place?

Any person who is responsible for paying to any resident any sum by way of consideration for transfer of VDA is required to deduct tax. Thus, in a peer-to-peer (i.e. direct buyer to seller) transaction, the buyer (i.e person paying the consideration) is required to deduct tax under section 194S of the Act.

   • Within how many days Virtual digital assets tax needs to be paid?

This tax must be paid to the exchange within 30 days of the month's end during which the deduction was made. 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.

   • what should Things keep in mind Before Filling the TDS 

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 the mode of consideration.

   • What are the other cases that include or exclude TDS?

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

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 consideration for transfer of VDA shall be on a Gross basis after including GST/commission or Net basis after exclusion of these items?

The tax required to be withheld shall be on the “net” consideration after excluding GST/charges levied by the deductor for rendering service.

Is the new circular applicable on foreign crypto trading platforms as well?

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.

   • How TDS Will Be Calculated on the Virtual Digital assets:

For Example :

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.

We hope this article will help you to plan their trades with clarity. Happy trading!

Joyashree Dey

CBW - External Analyst

INDIA