Crypto trading is going to be difficult in India from next month. The 1% TDS rule for cryptocurrency and virtual digital assets (VDAs) transactions will come into effect from the 1st of July 2022.
The Central Board of Direct Taxes (CBDT) recently released guidelines explaining who will be responsible for deducting TDS in different types of transactions.
As per the CBDT’s Circular No. 13 of 2022, the crypto buyer will have to deduct the TDS in the case of peer-to-peer transactions. If the transaction takes place on or through the exchange, the exchange may deduct TDS.
“In certain cases where the transaction takes place on exchange but the payment to the seller is made through the broker, in that case, both exchange and broker are required to deduct TDS, however, based on the written agreement, broker only may deduct TDS on the seller,” Gopal Bohra, Partner, N.A. Shah Associates told FE Online.
He further said that the person, whether buyer or exchange or broker, as the case may be, who has deducted TDS while making payment to the seller of VDA, will have to deposit the tax within 30 days from the end of the month in which tax is deducted.
“For example, tax deducted under section 194S in the month of July shall be deposited on or before 30th August,” Bohra said.
The tax shall be deposited online in Form No. 26QE which is challan-cum-statement of tax deducted under section 194S. For this purpose, TAN of the deductor is not required. However, if the deductor has TAN, he can fill the form in Form 26Q
Further, the deductor will have to issue the TDS certificate to the deductee in Form 16E within 15 days from the due date of furnishing the challan-cum-statement in Form No. 26QE after the same is downloaded from the income-tax portal.
Tax impact of TDS rule
Experts say that the 1% TDS rule will not result in any additional tax outgo in the hands of the seller as the same will be adjusted against his regular annual tax liability.
There will be no TDS compliance burden on the buyer if he or she buys crypto VDAs through an exchange.
“Though, there will be no additional tax outgo in the hands of the crypto seller due to 1% TDS since the same will be adjusted against his regular annual tax liability. However, this will definitely help the government to trace the crypto transactions and any tax leakage. Further, there will be no TDS compliance on the crypto buyer if he is buying through the exchange, because in such a case TDS will be deducted by the exchange and it will ease out his TDS compliance burden,” said Bohra.