TDS: Section 194S of the I-T Act was added by the Finance Act of 2022, payments for online digital assets or cryptocurrencies that exceed Rs 10,000 in a year would be subject to TDS (of 1 per cent) starting on July 1.
India’s tax department has published precise disclosures under which the date of exchange and method of payment must be indicated.
Beginning July 1, payments for virtual digital assets or cryptocurrencies exceeding Rs 10,000 per year will be subject to a 1% tax deducted at source (TDS).
On June 21, the Central Board of Direct Taxes (CBDT) announced changes to the I-T Rules regarding the submission of TDS returns on Forms 26QE and 16E in preparation for the introduction of the new provision.
According to a CBDT notification, TDS collected under Section 194S must be returned within 30 days of the end of the month in which the deduction was affected.
The challan-cum-statement Form 26QE must be used to deposit the tax that has been so levied.
Neeraj Agarwala, a partner at Nangia Andersen LLP, stated that to submit Form 26QE, the specified persons would need to keep records of information such as the date that virtual digital assets (VDAs) were transferred, the amount paid, the type of payment made, whether it was in cash or kind, or exchange for another VDA, etc.
The form is following the recently introduced Section 194S provisions and disclosures to comply with these requirements.
According to Agarwala, the designated individuals “should be well-equipped to understand and receive information essential for the legality, as well as preserve the proper documentation to validate these transaction records.”
According to Amit Maheshwari, an AKM Global Tax Partner, “There is a greater need for clarity regarding procedural compliance, as there are only a few days until the new TDS rules such as Section 194R and 194S take effect.”
“For expenditures on transfers of VDAs, the modern ideas like 26QE demand sufficient knowledge. It includes the date of the transfer and the amount paid or credited in cash, kind, or in exchange for another VDA.”
“The tax department would be able to track the VDA transactions thanks to this,” explained Maheshwari. But, he continued, it will also make it more difficult for taxpayers to comply.
The finance ministry is working on a frequently asked questions document on cryptocurrency taxation.
As of April 1, crypto transactions are subject to the same 30% I-T. Since July 1, a TDS of 1% has been added to payments in cryptocurrencies that are more than Rs 10,000.
Here are amongst the most crucial explanations from the advisory that, presented in a Q & A manner, can be helpful to Indian market participants of cryptocurrencies:
Who deducts TDS when transferring crypto through an exchange?
Tax may be deducted under section 194S of the Act only by the exchange which is crediting or making payment to the seller. In a case where a broker owns the VDA, it is the broker who is the seller, and therefore TDS is also subject to the tax deduction.
Who will issue TDS if it transfers crypto to trade through a buyer, not a seller?
The income-tax circular issued by Revenue India says that the responsibility to deduct tax under section 194S of the Act lies with both the exchange and the broker.
The exchange would have to send a quarterly report (on Form No. 26QF) about all of these transactions that happened during the quarter.
How will TDS work in the event of a crypto transfer to another cryptocurrency?
Both parties need to pay tax and show evidence for the exchange of VDA, according to the latest trading circular. Alternative tax may be deducted by the exchange itself based on a written contractual agreement with buyers and sellers.
This would then be required to be reported in the TDS statement along with the challan number.
Can TDS be deducted from crypto transfers via payment gateways?
Tax may be deducted twice if payment is made through payment gateways. The payment gateway will not be required to deduct tax under section 194S of the Act on a transaction.
If the tax has already been deducted by the person required to make a deduction under that section.
Will the TDS rule only be in effect for cryptocurrency transfers worth more than Rs 50,000 or Rs 10,000?
Section 194S of the Income Tax Act provides for a deduction of up to Rs 50,000 or Rs 10,000 for consideration for the transfer of a Virtual Digital Asset (VDA) in certain cases.
The deduction limit will come into effect from April 1st, 2022.
No TDS is applied to amounts credited or paid before July 1, 2022?
The Director of Revenue (DPR) in the Republic of Ireland has said that under section 194S of the Trade Union and Labour Relations (Consolidation) Act, any amount paid to VDA after July 1, 2022, will not be subject to the tax deduction.
