A series of new rules regarding taxes on cryptocurrencies and virtual digital assets are already in effect from July 1, requiring the buyer of a VDA to pay a 1 percent tax withheld at source (TDS) on the amount owed to the seller. paid. The cryptocurrency TDS rule came into effect when the Finance Act, 2022, inserted a new section 194S into the Act.
“The new section requires a person responsible for paying a resident an amount in consideration for the transfer of a virtual digital asset (VDA), to deduct an amount equal to 1 percent of that amount as income tax . The tax deduction must be made at the time of crediting such amount to the resident’s account or at the time of payment, whichever is earlier,” the Central Council of Direct Taxes said in a June 22 notice.
Companies begin to implement TDS rules
Cryptocurrency exchanges had already started implementing the new TDS rules for crypto days before it came into effect. The requirements have been implemented on the crypto exchange website, according to the companies.
“There are established processes for collecting TDS for relevant transactions. First, the collected TDS in INR must be paid to the Income Tax Department. For this, any TDS collected in the form of Crypto must be converted to INR. For ease of conversion and to reduce price slippage, in Crypto to Crypto transactions, the TDS for both parties would be deducted in the quote (or primary) Crypto assets,” said Rajagopal Menon, vice president of crypto trading platform WazirX.
“WazirX markets have four quote assets: INR, USDT, BTC, and WRX. For example, in the following markets: MATIC-BTC, ETH-BTC and ADA-BTC, BTC is the quoted crypto asset, and therefore the TDS of both the buyer and seller trading in these markets would be deducted in BTC ,” he added.
“We’ve already been working on implementing things on the TDS front, so there won’t be any significant changes with the newly released CBDT FAQ. In addition, TDS is repaid on loss-making transactions,” said Edul Patel, CEO and co-founder of Mudrex, a cryptocurrency investment platform.
What crypto exchanges are saying about the new rules
The new updated rules were already live on the WazirX platform on June 30. “We are in compliance with the government’s guideline of 1 percent TDS and the updates on our exchange and P2P platforms went live yesterday. The new update ensures that tax deductions are transparent to keep users informed about taxes throughout the crypto buying experience,” Menon said.
Talking about the TDS rule on cryptocurrencies, Patel added: “The only thorn in the tax is that it cannot offset crypto losses with the gains. But hopefully the government will address those in the coming years with more use cases of crypto coming to market.”
Get all the latest news, breaking news, watch top videos and live TV here.
