The rules regarding the tax deducted at source (TDS) on virtual digital assets (VDAs) and cryptocurrencies for transactions of more than Rs 10,000 have come into effect from Friday (July 1). The move comes after the imposition of 30 percent flat income tax on cryptocurrencies from 1st April 2022. Finance Minister Nirmala Sitharaman, during the Union Budget 2022-23 in Parliament on February 1 introduced a 1 percent tax deducted at source (TDS) on the transfer of the virtual digital assets (VDAs) — or simply put crypto and Non Fungible Tokens (NFTs).
If you are buying cryptos using INR, then no tax (TDS) will be deducted from the buyer. However, the seller of the crypto asset will be liable to pay TDS. WazirX explains that if a crypto asset is bought by paying with another Crypto asset, ie, trading one crypto asset for another, then the TDS would be payable by both parties.
As per the new guidelines, the buyer of a VDA is required to deduct 1 percent of the amount paid to the seller (an Indian resident) as TDS. The tax is required to be deducted at the time of credit of the amount or at the time of payment to the resident individual, whichever is earlier. The tax will be deducted only if the amount paid exceeds the specified limit, CBDT said.
Who will deduct TDS if transferring cryptocurrency on an exchange through a broker, who is not the seller?
The circular says that in a case where the credit/payment between Exchange and the seller is through a broker (and the broker is not seller), the responsibility to deduct tax under section 194S of the Act shall be on both the Exchange and the broker.
“However, if there is a written agreement between the Exchange and the broker that broker shall be deducting tax on such credit/payment, then broker alone may deduct the tax under section 194S of the Act,” the circular said. However, the exchange would be required to furnish a quarterly statement (in Form no 26QF) for all such transactions of the quarter on or before the due date prescribed in the Income-tax Rules, 1962.
Who will deduct TDS in case of crypto transfer through the exchange, which is also the owner of the asset?
In this case, the buyer will have to deduct the TDS. However, there may be cases when the buyer would not know whether the exchange is the owner of the asset or not. To remove any confusion in such cases, the circular said that as an alternative, “Exchange may enter into a written agreement with the buyer or his broker that in regard to all such transactions the Exchange would be paying the tax on or before the due date for that quarter.”
“The Exchange would be required to furnish a quarterly statement (in Form No. 26QF) for all such transactions of the quarter on or before the due date prescribed in the Income-tax Rules, 1962. The Exchange would also be required to furnish its income tax return and all these transactions must be included in such return,” the circular further said.
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