This was introduced by Sitharaman when she tabled the Union Budget 2022-23 in Parliament on February 1. The TDS rule would come in force from July 1, Friday for transactions of more than Rs 10,000.
However, the rules were not very clear until the Central Board of Direct Taxes (CBDT) issued clarifications on various issues as the Finance Act 2022 inserted a new section 194S in the Act from the coming month.
According to CBDT, 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.
Here is how TDS would be paid in various scenarios:
1. Peer-to-peer transaction
In a peer-to-peer transaction, a case where no broker or exchange is involved, the buyer is required to deduct tax under the given section.
The tax so deducted is required to be deposited with the government under the relevant provisions of the income-tax Rules. It may be clarified that the TDS shall be on consideration for the transfer of VDA less GST.
2. Transactions through a broker or exchange
When a VDA transfer is made through an exchange or a broker, tax may be deducted only by the exchange which is crediting or making payment to the seller.
In a case, where the credit or payment between the exchange and the seller is done through a broker, who is not the seller, the onus of deducting tax is on both the exchange and the broker. However, the onus shall be on the broker, where there exists a written agreement between the two parties that the broker shall deduct tax under Section 194S.
3. If VDA is owned by the exchange
In the given case, the primary responsibility to deduct the TDS is on the buyer or his broker. However, the exchange may enter into a written agreement with the buyer or his broker to pay the tax in regard to all such transactions.
The exchange will have to furnish a quarterly statement for all such transactions of the quarter on or before the due date and also furnish its income tax return, including all such transactions in the return.
4. For Crypto to Crypto Transactions
In such cases, the TDS must be deducted in crypto only. The cryptos would be required to be converted into Indian currency by 11.59 PM on the same day.
For instance, if the transaction is done from Bitcoin to Ethereum or vice-versa, 1 per cent of Bitcoin and 1 per cent of Ethereum will be deducted and the conversion in Indian Rupee must be undertaken by midnight.
Tax on crypto assets
From April 1, 2022, any gains arising from the sale of VDAs are taxable at 30 per cent with no exemptions to set off losses, barring the cost of acquisition. Even if one is not liable to pay income tax, gains from VDAs would not be exempted.
What is next?
Despite the notification from the CBDT, there is still no clarity on the implementation of TDS rules in the international exchanges, as well as, for products like margin trading, derivatives trading, or an ETF.
However, market participants believe that the inclusion of crypto assets in the Finance Bill and the latest TDS clarification is a step in the right direction. It will be interesting to see this space evolves in the coming months.
Largely the responsibility to deduct the TDS and the compliance burden has been increased for the exchanges, said Amanjot Malhotra, Country Head – India, Bitay – a Turkish crypto exchange. “They must maintain their entire transaction trail and disclose these transactions in their income tax returns.”
TDS is quite detrimental for day traders who do scalp trading, put frequent trades, and make money from the market. This is one of the biggest sources of volume for the exchanges and as the volumes drop, it will also impact earnings from all revenue sources, Malhotra added.
On the other hand, market participants fear that the new rules will push investors towards long-term investment products such as crypto baskets or ETFs, and frequent trading activities on domestic exchanges will take a big hit.
Another crypto exchange ZebPay said it will deduct TDS irrespective of the minimum threshold. The deducted amount can be claimed by users during annual tax filing.
“We have set up systems to effectively deduct TDS before settlements with transacting parties are made,” it added. “This is in line with legal requirements and will ensure a high degree of compliance is achieved for all trades on the platform.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)