The Central Board of Direct Taxes on Wednesday issued guidelines with regards to one percent TDS on virtual digital currencies (VDAs) that is set to come in force from next month. From July 1 onwards, TDS at the rate of one percent will have to be deducted by the person making the payment for buying cryptocurrencies, or VDAs.
The guidelines say that deduction will have to be made when payment is made of more than ₹50,000 is made in a financial year by a specified person. For others, the consideration amount should exceed ₹10,000 for deducting TDS under section 194S.
A specified person is the one who is part of Hindu Undivided Family (HUF) and whose total income in a year is lower than ₹one crore.
The board explained the nitty-gritties of this new legislation by taking a series of examples. These include the following:
1. A person responsible for paying to any resident for transfer of VDA is required to deduct tax. Thus, in a peer-to-peer transaction, the buyer is required to deduct TDS under section 194S of the Act.
2. When a transaction happens through an exchange, tax may be deducted by the exchange which is making payment to the seller.
3 When the consideration is in kind (i.e., not in cash) on in exchange of another VDA, or partly in kind and remaining in cash which is not high enough to cross the TDS threshold, the person responsible for paying consideration is still meant to ensure that tax required to be deducted has been paid.
4. Once tax is deducted under section 194S of the Act, tax would not be required to be deducted under section 194Q of the Act.
5. The board also clarified that tax required to be withheld under section 194S of the Act shall be on the net consideration after excluding GST levied by the deductor.
6. It has also been clarified in the series of guidelines that the payment gateways will not be required to deduct tax on a transaction to avoid double taxation. For example, a person 'X' is required to make payment to the seller for transfer of VDA. He makes payment of one lakh rupees through digital platform.
If ''X has deducted tax under section 194S of the Act on one lakh rupees, the platform will not be required to deduct tax under section 194S of the Act on the same transaction. To facilitate proper implementation, the digital platform may take an undertaking from 'X' regarding tax deduction.
7. Since the threshold of ₹50,000 (or ₹10,000) is with respect to a financial year, calculation of consideration for transfer of VDA will start from April 1.
And if the threshold is reached up to June 30, the provision of 194S of the Act will apply on any sum paid after July 1. Also, any sum paid before July 1 will not be subject to tax deduction under section 194S.
Some industry veterans are criticising the move to impose 1 percent TDS. Sathvik Vishwanathan, CEO of Unocoin, said that the same individual would have given more income tax if this 1% was with him.