Crypto investors are facing a hard time as they move from one setback to another. When steep fall in prices was not enough, the government has now introduced a levy of tax deducted at source (TDS) at the rate of one percent. This new tax will be effective from July 1 i.e., Friday. The Central Board of Direct Taxes (CBDT) has released a set of guidelines (via circular number 13 of 2022) to clear the doubts that tax payers and crypto investors may have with regards to TDS on virtual digital Assets (VDAs).
We have reproduced the key points of those clarifications here:
Do I need to pay TDS on all crypto transactions from July 1 onwards?
No, only those transactions which you make over and above ₹50,000 if you are a specified person. Else, the threshold is ₹10,000.
Who is supposed to deduct the TDS?
The one who is making the payment is supposed to deduct at the time of paying consideration for buying cryptocurrencies (referred to as VDAs).
What is a specified person?
It is an individual or Hindu undivided family (HUF) who does not have any income under the head “profit and gains of business or profession”; an also an individual or HUF having income under the head “profits and gains of business or profession”, whose total sales/gross receipts/turnover from business carried on by him does not exceed one crore rupee or in case of profession exercised by him does not exceed fifty lakh rupee.
This threshold is to be seen in the financial year immediately preceding the financial year in which the VDA is transferred.
Will transactions only after June 30 be considered for calculating the threshold?
No. All the trades between April 1 to June 30 are also considered to calculate the threshold.
What will happen when the transaction takes place at a crypto exchange?
When a transaction happens at a crypto exchange, there are chances of deducting TDS at multiple levels. So, to remove confusion, the board has clarified that tax may be deducted under section 194S of the Act only by the exchange which is crediting or making payment to the seller.
There are two ways to make payment for acquiring cryptos: in cash or in kind. How will TDS be deducted in case of cash?
Any person who is responsible for paying any sum by way of consideration for transfer of crypto assets is required to deduct tax. Thus, in a peer-to-peer transaction, the buyer is required to deduct tax and deposit it with Government.
After deduction, the deductor is required to furnish a quarterly statement (in Form No. 26Q) for all such transactions of the quarter on or before the due date prescribed in the Income-tax Rules, 1962.
For specified person, income tax department has already introduced Form 26QE. It may be clarified that the TDS shall be on consideration for transfer of VDA less GST.
How can TDS be deducted when consideration is in kind?
There could be a situation where the consideration is in kind or in exchange of another VDA or partly in kind and cash is not sufficient to meet the TDS liability. In this situation, the person responsible for paying such consideration is required to ensure that tax required to be deducted has been paid in respect of such consideration, before releasing the consideration.
Thus, the buyer will release the consideration in kind after seller provides proof of payment of such tax (e.g., challan details etc.).
For example, where bitcoin is being exchanged with another crypto token, say ethereum — both the persons are buyer as well as seller. One is buyer for ‘bitcoin’ and seller for ‘ethereum’ and another is buyer for ‘ethereum’ and seller for ‘bitcoin’.
Thus. both need to pay tax with respect to transfer of VDA and show the evidence to other so that VDAs can then be exchanged.
In what situation, the TDS doesn't need to be deducted?
When the consideration payable by a specified person is lower than ₹50,000 during the financial year, or when the consideration payable by any person other than specified person is lower than ₹10,000 during the financial year.
In transactions where payment is being carried out through payment gateways, there may be chances of double deduction. What will happen when transaction is routed like this?
The board of direct taxes has clarified that the payment gateway will not be required to deduct tax under section 194S of the Act on a transaction, if the tax has been deducted by the person required to make deduction. The payment gateway may, however, take an undertaking from the person responsible for deducting the tax.