The Central Board of Direct Taxes (CBDT) has issued detailed guidelines on levying withholding tax (TDS) on virtual digital assets (VDAs) or crypto assets, which will come into effect on July 1. He specified the deadlines to be respected. by the parties to a virtual digital asset transaction by reporting it to the tax authority, including the date of the transaction and the method of payment.
Finance Minister Nirmala Sitharaman introduced in the 2022 Union budget the provision of a 1% withholding tax levied on payments made when transferring virtual assets. It also announced a 30% levy on virtual assets, including cryptocurrency and non-fungible or NFT tokens.
“The new section (Section 194S) requires a person, who is liable to pay any resident any sum in consideration for the transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as the income tax thereon. The tax deduction shall be made at the time of crediting this sum to the resident’s account or at the time of payment, whichever comes first,” the CBDT said in a notification.
Will tax be deducted at both ends – buyer and seller?
CBDT said that if the buyer has deducted tax under Section 194S of the Income Tax Act, the seller will not be required to deduct it on the same transaction. To facilitate proper performance, the seller may make a commitment from the buyer as to the deduction of the tax.
Any sum deducted 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. The person responsible for withholding tax must deliver a TDS certificate to the beneficiary within 15 days of the deadline for reporting to the government, under the new rules.
In case of transactions through exchanges
In transactions through any exchange, he stated that in such a situation, tax may be deducted by the exchange. “If the transaction is through an exchange, there is a practical problem in the implementation of this provision. In order to solve this practical problem and solve the difficulties, it is specified that in such a situation, alternatively, the tax may be deducted by the Exchange,” CBDT said.
He added that the trail of trades evidencing the 1% deduction from consideration for each ARV to ARV transaction will be maintained by the Exchange.
In which cases is the deduction not compulsory?
The CBDT said: “This deduction (TDS) is not required in the following cases:- (i) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed Rs 50,000 at the during the financial period year; or (ii) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed Rs 10,000 during the financial year.
Calculation of the limit of Rs 50,000 or Rs 10,000
The obligation to deduct tax under Section 194S of the Act only applies where the value or aggregate value of the consideration for the transfer of VDA exceeds Rs 50,000 during the financial year in the event of consideration 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 will be calculated, CBDT said that since the threshold of Rs 50,000 (or Rs 10,000) relates to the financial year, the calculation of the consideration for the transfer of VDA triggering the deduction under Section 194S of the Act will be counted from April 1, 2022.
“If the value or total value of the consideration for the transfer of VDA payable by a person exceeds fifty thousand rupees (or ten thousand rupees) during the financial year 2022-23 (including the period up to June 30, 2022 ), the provision of Section 194S of the Act will apply to any sum, representing consideration for the transfer of VDA, credited or paid on or after July 1, 2022,” the CBDT said.
He added that since the provision of Section 194S of the Act applies at the time of the crediting or payment (whichever comes first) of any sum, representing consideration for the transfer of VDA, such sum which has been credited or paid before July 1, 2022, would not be subject to a tax deduction under Section 194S of the Act.
Sudhakar Sethuraman, Partner at Deloitte India, said: “With the provisions of TDS on the transfer of VDAs which will come into effect from July 1, the published guidelines have brought some clarity on the operations/implementation of TDS. . Although many details must be reported in the withholding statement, the compliance responsibility of individuals is higher.
Sethuraman added that the guidelines ease the burden of deduction when multiple people are involved (exchange, broker, seller and buyer), TDS in case of in-kind transfer. “Nevertheless, individual taxpayers should make sure to secure all information and affirm that the necessary taxes or deducted and deposited.”
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