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The Central Board of Direct Taxes (CBDT) has issued detailed guidelines on facilitating tax deducted at source (TDS) on virtual digital assets (VDA) or crypto assets, under which date of transfer and mode of payment will have to be specified.
From July 1, TDS of 1 per cent will be levied on payments towards virtual digital assets or cryptocurrencies beyond Rs 10,000 in a year, as the Finance Act 2022 has introduced Section 194S in the income tax (I-T) Act.
The department has explained different scenarios through six questions to remove difficulties.
Under the new regime, the transactions will have to be disclosed in the tax return and a paper trail will have to be maintained.
This would be helpful to both buyers and sellers since they can enter into contracts with the exchange for passing the responsibility to deduct tax on their behalf on virtual asset transfers or otherwise as well.
“The CBDT has pragmatically covered the practical scenarios to facilitate smooth implementation of the withholding on consideration for transfer of VDAs.
"Broadly, the responsibility to deduct TDS has been put on the exchange which will increase the regulatory and compliance burden for them,” said Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm.
In a case where the transfer of VDA takes place on or through an exchange and the VDA being transferred is owned by such exchange, while the primary responsibility to deduct tax under section 194S of the Act, in this case, remains with the buyer or his broker, as an alternative the exchange may enter into a written agreement with the buyer or his broker that in regard to all such transactions the exchange would be paying the tax on or before the due date for that quarter.
The Exchange would be required to furnish a quarterly statement (in Form No. 26QF) for all such transactions of the quarter on or before the due date prescribed in the I-T rules.
The finance ministry is also working on an FAQ on the taxation of cryptocurrency, which will provide further clarifications on the applicability of income tax on virtual digital assets.
A 1 per cent TDS on payments over Rs 10,000 towards virtual currencies has also been introduced.
The threshold limit for TDS would be Rs 50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act.
