TDS on VDA: From July 1, 1 per cent TDS will have to be paid on all virtual digital assets transactions.
TDS on Virtual Digital Assets: From July 1, investors will have to pay 1 per cent TDS on all virtual digital assets (VDA) transactions, including all crypto. This tax was announced by Finance Minister Nirmala Sitharaman in her budget speech of 2022, 1% TDS on transfer of all Virtual Digital Assets (VDA). Apart from this, he also announced in the budget that investors will have to pay tax at the rate of 30 percent on the earnings from cryptocurrencies. The Central Board of Direct Taxes (CBDT) has recently issued a circular to answer the Frequently Asked Questions (FAQs) regarding the tax applicable on transfer of VDAs. Let us know what the CBDT has told in this circular.
According to which buyers should deduct TDS?
TDS will have to be deducted at the time of payment by an Indian resident who purchases a virtual digital asset, if –
- 50,000/- or more (in case the specified person or HUF making the payment requires audit of his accounts) at a time or in aggregate during a financial year
- 10,000 or more (the person making the payment falls under a category other than the specified category mentioned above) in a single or aggregate amount of Rs.10,000 or more during a financial year
TDS and timeline related dates
As per the provisions, the buyer of VDA should deduct TDS at the time of making the payment. After this, it is necessary to deposit TDS with the government within 30 days of the month in which TDS has been deducted. For example, if the VDA buyer made the payment on 15th August 2022, then he will also have to deduct TDS on the same day i.e. 15th August 2022 and then deposit it in the government account by 30th September 2022. After this, Form 16E will be issued by 15 October 2022. Transactions made prior to July 1, 2022 are not covered under this provision.
Filing Forms and Documents
CBDT has notified the filing of TDS return in Form 26QE for specified person and Form 26Q for others along with Form 16E to be issued by the person deducting TDS. Further, Form 26QF may be required to be filed in cases where TDS has been deducted from payments made to multiple parties.
Transaction of VDA through Exchange or Broker
Apart from sellers and buyers, sometimes brokers and exchanges can also be involved in the transfer of VDAs. If VDA is owned by an individual and payment for the same is being made through an exchange, then TDS will also have to be paid to the same exchange. But if the VDA is owned by the broker, then TDS will also have to be deducted on the amount paid by the broker to the exchange. But if the broker is not the owner of the VDA and is only facilitating the transaction, then the responsibility of TDS will be on both the buyer and the seller. But if it is made clear through a special written agreement that only the broker will be responsible for TDS for all transactions, then this can also be done. If the owner of the VDA is the exchange, then the responsibility of deducting and depositing TDS will be on the buyer or broker.
On swapping of two VDAs
If two VDAs are interchanged, the buyer will pay only after the seller produces proof of payment of tax. If this transaction is done through the exchange, then the exchange will have to arrange for TDS deduction for both the parties with a written agreement.
TDS related responsibility of payment gateway
Payment gateways provide fund transfer facility to their users. This includes transfers made from bank accounts, wallets, UPI, etc. In the circular issued by the government, it has been clarified that the payment gateway will not be responsible for deducting TDS, provided the people responsible for it have done so.
What is in section 194S and 194Q?
It has also been clarified in the circular that once TDS has been deducted under section 194S, no TDS will be deducted again under section 194Q or any other provision.
(Article : Sudhakar Sethuraman, Tax Partner, Deloitte Haskins & Sells LLP)