Apart from attracting a 30 percent tax rate introduced by the Government in the Union Budget 2022-23, cryptocurrency sale transactions are also set to attract additional tax deducted at source (TDS) of 1 percent from July 1 onwards.
TDS From July
Further, the TDS deduction will be applicable to all virtual digital asset (VDA) transfers such as cryptocurrencies, and non-fungible tokens (NFTs) worth over Rs 10,000.
A VDA is defined as any information, code, number or token, except Indian or any other foreign currency, that is generated through cryptographic or other means, as per the newly introduced clause 47 A of the Income Tax Act.
Besides this, the Non- Fungible or any other similar tokens are included in this definition.
The Finance Minister Nirmala Sitharaman announced a TDS deduction of 1 percent during the Union Budget 2022-23.
Ambiguity Resolved
An ambiguity arose after the income tax department website mentioned that the rate for virtual digital assets had been brought down to 0.1 percent from the 1 percent TDS on such assets.
Although, the IT department on June 22, reiterated that TDS on virtual digital assets will remain at 1 percent, as announced in the Union Budget, clearing the air.
TDS Applicability
While clarifying, the Central Board of Direct Taxes (CBDT) said that the onus of withholding the TDS lies with the person making the payment to the seller which is either a buyer, an exchange or a broker.
This simply means that the TDS needs to be deducted from the selling price and after deduction of the TDS amount the rest can be paid or transferred to the seller.
The instances where the transaction of VDAs is carried out directly between the buyer and sellers without the involvement or exchange of a broker, the buying party will be required to deduct the tax under Section 194S of the IT Act.
The cases where the transfer of VDA is through a broker or an exchange, the tax deduction will be made by the exchange, which is crediting or making payment to the seller.
On the other hand, the cases which involve a broker, who is not the seller, the onus of tax deduction will be on both the broker and the exchange, provided there’s no prior written agreement between the parties.
The case where VDAs being sold are primarily owned by an exchange, can enter into a written agreement with the buyer or his broker that regarding all such transactions the exchange would pay the tax.
The cases where the transfer of VDA in exchange for kind, the buyer will be required to release the consideration in kind after the seller provides proof of payment of such tax.
In case of VDA for VDA transactions, both buyer and seller need to pay tax with respect to the transfer of VDA and show the evidence to each other so that VDAs can then be exchanged.
Then the transaction will have to be reported in the TDS statement along with the challan number, by filling up Form 26Q.
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