The Central Board of Direct Taxes (CBDT) has issued detailed guidelines on the levy of tax deducted at source (TDS) on virtual digital assets (VDA) or crypto assets, which will be effective July 1. It has specified the timelines to be adhered to by parties to a virtual digital asset transaction in reporting it to the tax authority, including the date of the transaction and the mode of payment.
Finance Minister Nirmala Sitharaman in the Union Budget 2022 introduced the provision of tax deducted at source at 1 per cent levied on payments made on transfer of virtual assets. It also announced a levy of 30 per cent on virtual assets, including cryptocurrency and non-fungible tokens or NFTs.
“The new section (Section 194S) mandates a person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA), to deduct an amount equal to 1 per cent of such sum as income tax thereon. The tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier,” the CBDT said in a notification.
Will The Tax Be Deducted At Both The Ends — Buyer and Seller?
CBDT said that if the buyer has deducted tax under Section 194S of the Income Tax Act, the seller will not be required to deduct it on the same transaction. To facilitate the proper implementation, the seller may take an undertaking from buyer regarding the deduction of tax.
Any sum deducted under section 194S is to be paid to the central government within 30 days from the end of the month in which the deduction was made. The person responsible for deduction of tax should give a TDS certificate to the payee within 15 days from the due date for reporting it to the government, according to the new rules.
In Case of Transactions Through Exchanges
In transactions through any exchange, it said that in such a situation, tax may be deducted by the Exchange. “If the transaction is through an Exchange there is practical issue in implementing this provision. In order to address this practical issue and to remove difficulty, it is clarified that in such a situation, as an alternative, tax may be deducted by the Exchange,” CBDT said.
It added that the trail of transactions evidencing deduction of 1 per cent of consideration for every VDA to VDA trade shall be maintained by the Exchange.
In What Cases Deduction is Not Required?
The CBDT said, “This deduction (TDS) is not required to be made in the following cases:- (i) 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; or (ii) the consideration is payable 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.”
Computation of Rs 50,000 or Rs 10,000 Limit
The liability to deduct tax under Section 194S of the Act applies only when the value or aggregate value of the consideration for transfer of VDA exceeds Rs 50,000 during the financial year in case of consideration being paid by the specified person and Rs 10,000 in other cases, according to the CBDT notification.
On how will the Rs 50,000 or Rs 10,000 be computed, CBDT said that since the threshold of Rs 50,000 (or Rs 10,000) is with respect to the financial year, the calculation of consideration for transfer of VDA triggering deduction under the Section 194S of the Act shall be counted from April 1, 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 30th June 2022), the provision of section 194S of the Act shall apply on any sum, representing consideration for transfer of VDA, credited or paid on or after July 1, 2022,” the CBDT said.
It added that since the provision of the Section 194S of the Act applies at the time of credit or payment (whichever is earlier) of any sum, representing consideration for transfer of VDA, such sum which has been credited or paid before July 1, 2022, would not be subjected to tax deduction under Section 194S of the Act.
Sudhakar Sethuraman, partner at Deloitte India, said, “With the TDS provisions on transfer of VDA will be effective from July 1, the guidelines released have set in some clarity on operations/implementation of TDS. While there are many details required to be reported in the withholding statement, the compliance responsibility of the individuals is on the higher side.”
Sethuraman added that the guidelines eased out the deduction onus when multiple persons are involved (exchange, broker, seller, and buyer), TDS in case of transfer in kind. “Nevertheless, the individual taxpayers should ensure to secure all information and affirm that necessary taxes or deducted and deposited.”