The Central Council for Direct Taxes (CBDT) has issued detailed guidelines on the withholding tax (TDS) levy on virtual digital assets (VDA) or crypto-assets, which will take effect on July 1. It has specified the timelines that must be adhered to by parties to a virtual digital asset transaction by reporting it to the tax authorities, including the date of the transaction and the method of payment.
Finance Minister Nirmala Sitharaman has introduced in the Union’s 2022 budget the provision of tax withheld at source at 1 percent levied on payments made in the transfer of virtual assets. It also announced a 30 percent levy on virtual assets, including cryptocurrency and non-replaceable tokens or NFTs.
“The new Section (Section 194S) requires a person responsible for paying a resident an amount in consideration for the transfer of a Virtual Digital Asset (VDA) to pay an amount equal to 1 percent of that amount. to be deducted 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 CBDT said in a notice.
Will the tax be deducted at both ends – buyer and seller?
CBDT said if the buyer has withheld tax under Section 194S of the Income Tax Act, the seller does not have to deduct it for the same transaction. To facilitate proper execution, the seller can make a commitment from the buyer about the withholding of tax.
Any amount withheld under Section 194S must be paid to the central government within 30 days of the end of the month in which the deduction was made. Under the new rules, the person in charge of withholding tax must provide the beneficiary with a TDS certificate within 15 days from the due date for filing to the government.
In the case of transactions through exchanges
With transactions via an exchange it states that in such a situation tax can be deducted by the exchange. “If the transaction is through an Exchange, there is a practical problem in implementing this provision. In order to address this practical issue and eliminate problems, it is clarified that in such a situation, alternatively, tax may be withheld by the Exchange,” CBDT said.
It added that the trail of transactions showing that 1 percent of the fee for each VDA-to-VDA transaction has been deducted will be maintained by the Exchange.
In which cases is deduction not required?
The CBDT said: “This deduction (TDS) is not required to be made in the following cases:- (i) the fee is due by a particular person and the value or aggregate value of such fee does not exceed Rs 50,000 during the financial year; or (ii) the fee is to be paid by any person other than a specified person and the value or aggregate value of such fee does not exceed Rs 10,000 during the financial year.”
Calculation of Rs 50,000 or Rs 10,000 Limit
The obligation to deduct tax under Section 194s of the Act only applies when the value or the total value of the fee for the transfer of VDA during the financial year exceeds Rs 50,000 in case the fee is paid by the specified person and Rs 10,000 in other cases, according to the CBDT notification.
On how the Rs 50,000 or Rs 10,000 is calculated, CBDT said that since the threshold of Rs 50,000 (or Rs 10,000) relates to the fiscal year, the calculation of the VDA transfer fee gives rise to a deduction under Section 194s of the The law is counted from April 1, 2022.
“If the value or the aggregate value of the consideration payable by an individual for the transfer of VDA during the fiscal year 2022-23 (including the period up to June 30, 2022) exceeds fifty thousand rupees (or ten thousand rupees), the determination of section 194s of the Act applies to any amount that constitutes consideration for the transfer of VDA credited or paid on or after July 1, 2022,” the CBDT said.
It added that since the provision of Section 194s of the Act applies at the time of crediting or payment (whichever is earlier) of any amount, which constitutes consideration for the transfer of VDA, such amount will be credited or paid before July 1, 2022, would not be subject to tax deductions under Section 194s of the Act.
The opinion of an expert
Sudhakar Sethuraman, partner at Deloitte India, said: “With the TDS provisions on the transfer of VDA to be effective from July 1, the guidelines released have provided some clarity on the operations/implementation of TDS. While many details need to be stated in the withholding statement, the compliance responsibility of the individuals is on the higher side.”
Sethuraman added that the guidelines relaxed the deduction burden when multiple persons are involved (exchange, broker, seller and buyer), TDS in case of transfer in kind. “Nevertheless, the individual taxpayers must ensure that all information is secure and confirm that the necessary taxes are deducted and deposited.”
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