The rules regarding tax deducted at source (TDS) on virtual digital assets have come into effect starting July 1. This comes after the government levied a 30 percent flat income tax on cryptocurrencies from April 1. During this time, the government also announced the imposition of a TDS of 1 percent. However, traders and exchanges were under the confusion about whom the onus of deduction would lie.
The Central Board of Direct Taxes, (CBDT), issued detailed guidelines regarding crypto assets on June 22 and clarified the different scenarios under which tax would apply. If the transaction value exceeds Rs 10,000 per year, a TDS will be levied. These provisions are explained in four points to help you better understand them.
Applicable from July 1
TDS provisions are applicable from July 1, 2022. This means any trades executed before July 1 won’t lie under the onus of dedications. It should be noted that if you have placed orders before July 1, 2022, but the trade happens on or after the 1st of July 2022, the TDS provisions will still apply. For instance, say you bought Rs 10,000 worth of Bitcoin in June but processed the trade after June 30 then TDS would still be levied. As per the provisions, TDS would be deducted on each trade where a crypto asset is exchanged for INR or for another crypto asset.
Seller pays TDS
If you purchase cryptos using Indian Rupees, then no tax (TDS). TDS will be charged to the seller of the crypto asset. WazirX explained that if a Crypto asset is bought with another Crypto Asset, i.e. trading one Crypto asset for another, then both parties will have to pay TDS. But, what about P2P and peer-to-peer trades?
In the case of P2P trades, 1% tax (TDS), will be deducted from the sale order before it is placed. The P2P buyer will not have to pay tax (TDS). Peer-to-Peer trading allows you to buy and sell cryptocurrencies without the need for any intermediary or third party. Although you technically do require a platform where buyers and sellers can connect. You don’t need to transact with the platform necessarily, all the transactions occur between the two parties — seller and buyer.
Notably, if a user has not filed their Income-tax Return within the last two years, and the amount of TDS in each of those two previous years is Rs 50,000 or greater, then the tax (TDS), to be deducted from crypto-related transactions will at 5% according to Section 206AB, Income-Tax Act 1961.
P2P orders can be made by crypto exchanges. Users will see the applicable TDS on their order confirmation screen, and the TDS deducted from the order details screen after execution.
TDS in crypto will be converted to INR
The TDS collected needs to be paid to the Income Tax Department in the form of INR. Any TDS collected in the form of crypto has to be converted to INR and for ease of conversion and to reduce price slippage, in crypto to crypto transactions, the TDS for both sides would be deducted.
TDS calculation excluding GST
The TDS will be calculated on the ‘net’ consideration payable after excluding GST/charges levied by the Exchange. “TDS at 1 percent will be levied on the “Sale value excluding any charges and GST”. In case of Sale Value being crypto to crypto trade, TDS will be deducted at 1 percent in respective coins on both legs of the transaction. This will convert into INR,” according to Punit Agarwal, CEO of KoinX
Buyers who purchase crypto via P2P will need to comply with all TDS compliances. This can be difficult for retail traders. “Sellers will find it difficult to trade in cryptocurrencies as effectively 1 percent of the sale value will be blocked as TDS thereby reducing the capital available for next trade,” he added.
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