Section 194S of the Income Tax Act provides for TDS on sale of Virtual Digital Assets (VDAs) at 1%.
Key Highlights
- Crypto Exchange (or broker) should deduct 1% TDS, and must file quarterly Form 26QF.
- No TDS needs to be deducted if the sale value do not exceed Rs. 10,000 (Rs.50,000 for specified persons)
- TDS applies even in case of exchange of one crypto asset for another.
Section 194S provides for TDS on sale of cryptocurrencies and other Virtual Digital Assets. 1% TDS needs to be deducted on sale of crypto transactions. This is applicable in cases where the value of the transaction exceeds Rs 10,000 in a particular year (Rs 50,000 in the case of specified persons). The tax deducted is required to be reported to the government in Form 26Q for other persons and in Form 26QE for specified persons.
For example, if you buy cryptocurrency worth Rs 1,00,000, you must deduct TDS at 1% of Rs 1,00,000 from your payment and pay the balance of Rs 99,000 to the seller. You will need to deposit Rs 1,000 with the government.
For specified persons, the TDS threshold limit is relaxed to Rs.50,000 in case of specified persons.Here, a Specified Person means:
The Central Board of Direct Taxes (CBDT) has recently issued guidelines for TDS deduction on VDAs under the following scenarios.
If the transfer of VDA takes place on or through an Exchange (who does not own the VDA), then the transaction chain may look something like this:
Buyer⇒ Broker ⇒ Exchange ⇒ Broker ⇒ Seller (owner)
If the transfer of VDA takes place on or through an exchange (who does not own the VDA), then the exchange shall make the TDS at 1% and remit the balance amount of consideration to the seller. Where many parties are involved, and the buyer or his broker is required to deduct TDS.
Alternatively, the exchange may enter into an agreement with the buyer or their broker stating that the exchange shall pay the due tax on or before the due date of that quarter. In this case, the exchange would be required to furnish a quarterly report in Form No. 26QF on or before the due date.
Unlike the above cases, the payments could be in kind, partly in kind, or in barter for another one. In such cases, the exchange may deduct tax on both legs of the transactions based on its agreement. If the transaction is not done through an Exchange, the person making the payment (buyer) must deduct and deposit the TDS.
Form No. 26Q has included provisions for reporting such transactions. Similarly, Form No. 26QE has been introduced in the case of specified persons.
If the tax is deducted under Section 194S, TDS under section 194O (TDS on E-Commerce transactions) would not be required.
The tax will be deducted from the net consideration after excluding Goods and Services Tax (GST) or other charges.
If the payment for the transfer of a VDA is made through a payment gateway, then the payment gateways are exempted from deducting TDS.
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