Few days back Central Board of Direct Taxes (CBDT) has issued new rules and guidelines on TDS that needs to be deducted for all transactions related to Cryptocurrencies and Virtual Digital Assets (VDA) with effect from 1st July, 2022. We all know that Govt of India has imposed cryptocurrency capital gains tax in recent budgets. However, crypto currency investors or traders felt that this is only a year end activity. CBDT new rules and guidelines on TDS on Crypto and VDA is something they need to watch going forward. In this article we would provide Crypto Currency or Virtual Digital Assets TDS Rules and Regulations applicable from 1st July, 2022.
Crypto or Virtual Digital Assets (VDA) TDS Rules 2022
Here are the new crypto TDS rules in 2022.
1) CBDT has issued Crypto or VDA TDS rules which are effective from 1st July, 2022.
2) As per the new law, every purchaser of VDA / crypto is required to deduct 1% of the amount paid to the seller.
3) This Crypto / VDA TDS needs to be deducted at the time of credit of amount or at the time of payment to the resident individual whichever is earlier.
4) TDS needs to be deducted by the buyer if it crosses specific amount indicated by CBDT. Refer next section about this limit.
When is Crypto / VDA TDS applicable?
It is applicable only in case of the following:
1) If the amount paid by a specific person (which is buyer) crosses Rs 50,000 in a financial year.
2) Any amount paid by any other person (who is not specific person) crosses Rs 10,000 in a financial year.
Definition of specific person: Below individual would fall under this.
1) Any individual or HUF who does not have income under the head “profits and gains of business or profession”
2) Any individual or HUF who have income under the head “profits and gains from business or profession”, however the total sales/receipts/income does not exceed Rs 1 Crore and in case of profits from profession, it should not exceed Rs 50 Lakhs.
FAQs on Crypto Currencies or Virtual Digital Assets TDS Rules 2022
From when these Crypto / VDA TDS Rules applicable?
Cryptocurrency TDS rules are applicable for all transactions done from 1-Jul-2022 onwards. You would have purchased cryptos earlier, however, when you are selling in the future, you would see TDS is coming into the picture.
Who has accountability to deduct TDS in Cryptocurrencies / VDA trading or investing?
The accountability of deducting TDS lies with the buyer of the cryptocurrencies. The TDS amount needs to be deducted before the amount is credited to the seller.
Who would deduct TDS if VDAs are sold by sellers on exchanges?
If the virtual digital assets are sold through exchanges (e.g. Coinbase or wazirx etc.), the TDS needs to be deducted by exchanges before they remit the amount to the seller.
e.g. If Mr. Rajesh is selling Bitcoin through WazirX platform to a seller Mr. Mahesh, then while Mr. Rajesh (buyer) pays the money to buy bitcoin, Wazirx platform would deduct TDS and pay the net amount to Mr. Mahesh.
Who would deduct TDS if VDAs are sold directly to exchanges without 3rd party?
If the buyer is selling directly to exchange without further selling to 3rd party, then the buyer needs to deduct TDS and remit the balance amount to exchange.
Who would deduct TDS if VDAs are sold through exchanges via a broker to sellers (4 parties involved)?
There could be a situation where a buyer wants to sell a cryptocurrencies through exchange to another broker who in turn sells it to buyer i.e. Seller à Exchange à Broker à Buyer. We could see these scenarios too, hence CBDT has clarified this in their circular. Here the TDS needs to be deducted before this is credited to end buyer. It can be exchange or broker.
Can I sell Crypto now and pay TDS after the financial year is closed?
No. While capital gains tax can be paid after the financial year is closed (but before filing ITR), TDS needs to be deducted as and when the transaction happens and this needs to be deposited within 30 days from the date of the transaction.
Is TDS applicable if I exchange one virtual digital asset with another?
There are cases where one can exchange a cryptocurrency with another (e.g. exchange Bitcoin with Ethereum and no money is involved). In such case both parties need to pay TDS as per these crypto TDS rules as it would be treated as two different transactions. Continuing this example, buyer of Bitcoin would deduct TDS and pay the balance and the buyer of Ethereum would deduct TDS and pay the balance amount.
Would there be any TDS certificate that would be issued in this case?
When buyer deducts TDS, it needs to be deposited within 30 days from the end of the month in which this TDS is deducted. The tax will be deposited using Challan-cum-statement in Form no 26 QE.
Buyer (who deducted TDS and deposited within 30 days with Govt of India) will be required to issue Form 16E (new form to be issued by CBDT) to the seller of the Virtual Digital Assets within 15 days from the due date of furnishing the Challan-cum-statement in Form 26 QE.
What are VDA TDS rules in case buyer do not have a PAN?
In case the buyer does not have a PAN card, then the TDS amount to be deducted is 20%. I feel this point might need amendment as the penalty should not be for a buyer, but to the seller.
Are VDA TDS rules different in case buyer never filed income tax returns earlier?
In case buyer has never filed an income tax (even if they have Pan card), the TDS to be deducted is 5% if such buyer is not a “specific person”. Again I feel this point might need amendment.
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