Issuing detailed guidelines on TDS rule for cryptocurrencies like Virtual Digital Assets (VDAs), the Central Board of Direct Taxes (CBDT) on Wednesday laid out various scenarios as to how the tax would be applicable and who would be liable to deduct it. Go.
With the introduction of section 194S in the Income Tax Act through the Finance Act, 2022, tax deducted at source (TDS) of 1 per cent will be levied on transfer of VDA with effect from July 1, if the value of the transaction exceeds Rs 10,000 in a year. year.
The CBDT has defined the responsibilities of deducting tax in various cases in the guidelines. For example, if the transfer of VDA takes place on or through an exchange, and the VDA being transferred is not owned by the exchange, tax can be deducted on payment by the exchange to the seller. However, if the payment is being made between the seller and the exchange through the broker, the responsibility of deducting the tax will lie on both the exchange and the broker.
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Similarly, if the transfer of VDA takes place on or through an exchange, and the VDA being transferred is owned by this exchange, the primary responsibility for deducting tax rests with the buyer or his broker. Alternatively, the Exchange may enter into a written agreement with the buyer or its broker that the Exchange shall pay tax in respect of all such transactions on or before the due date for that quarter.
This mainly pertains to situations where the VDA is being transferred against the money. The CBDT has also cited instances where VDAs are transferred to another VDA.
For example, if two different cryptocurrencies, such as bitcoin and ether, are being exchanged, both individuals would be considered both buyers and sellers. Therefore, both have to pay tax in relation to the transfer of cryptocurrency. The guidelines also allow exchanges facilitating such transactions to deduct tax in these cases.
Additionally, the CBDT has defined four primary VDAs – Bitcoin, Ether, USD Tether and USD Coin – for the purpose of tax deduction on lesser known cryptocurrencies. “For example, in the case of trading Monero to Deso… the exchange will immediately transfer such tax deduction (1% Monero / 1% Deso in the above example) to the primary VDA (BT, ETH, USDT, USDC) that can be easily This move will ensure that the tax deducted under section 194S of the Act in the form of non-primary VDAs such as Deso/Monero is converted into equivalent to the primary VDAs, which have ready Indian Rupee There is market.
Commenting on these guidelines, AKM Global Tax Partner Amit Maheshwari said, “Broadly speaking, the responsibility of deducting TDS has been shifted to the exchanges, which will increase the regulatory and compliance burden for them… to the exchanges in their tax returns.” These transactions will have to be disclosed. and maintain a proper trace. However, it will be helpful for both buyers and sellers as they contract with the exchange to pass on the responsibility of deducting tax on their behalf in the VDA to the VDA, transfer or otherwise also. can enter.
Neeraj Aggarwal, Partner, Nangia Andersen LLP, said, “Overall, the CBDT has successfully clarified several open issues that were being debated in professional circles. However, several recommendations made by the CBDT, particularly on transactions In respect of documents required to be maintained between the parties to the agreement, for example agreement, invoice, undertaking etc., may not be practical and therefore several clarifications may be issued under this circular unnecessary.”