New TDS Section 194S- TDS on Crypto Income applicable from 1st July 2022- Important

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New TDS Section 194S- TDS on Crypto Income

For tracing the transaction of virtual digital assets, the government has inserted a new provision of Section 194S for deduction of TDS at 1% by the persons at the time of payment of any sum as consideration for the transfer of virtual digital assets. 

Threshold limit- TDS shall be deducted if the aggregate value of transfer of virtual digital assets is more than Rs 10,000 during the relevant financial year. 

However, if any individual or HUF-

  • Does not have income from business or profession.
  • If they earn income from business or profession, but the income does not exceed Rs 1 crore or Rs 50 lakh, respectively.

Are responsible for deducting TDS under this section if the aggregate value of VDA exceeds Rs 50,000 during the year. 

Read Also: TDS Rates and Threshold Limit Charts for The FY 2022-23: Important

Tax deduction: The government has further put clarification for TDS deduction on the payments made in kind or partly in kind.

As per the TDS provisions proposed, if the person makes payment:

  • Partly in cash or kind, but the part payment made in cash is not enough to deduct TDS in respect of the whole of such transaction.
  • Wholly in kind or for the exchange of another virtual digital asset (i.e. no payment in cash).

The person responsible for deducting TDS must ensure that tax is paid for consideration for the transfer of virtual digital assets and release the payment for such transactions.

Read Also: RBI’s New Central Bank Digital Currency (CBDC) in Budget 2022: Useful Details

TDS Rate u/s 194S for TDS on Crypto

The deductor should deduct TDS under Section 194S at the rate of 1% of the transfer amount at the time of the payment for the transfer of VDA (Virtual Digital Assets).

If the payer makes the payment in kind or for exchange of another VDA or pays partly in cash and partly in kind, they must make sure that they deposit the TDS with the government before making the payment.

Due Date to deposit TDS u/s 194S

ParticularsTime Limit to deposit TDS
If the amount is credited in the month of MarchOn or before 7th April for Government Deductor
On or before 30th April for Other Deductor
If the amount is credited in a month other than MarchWithin 7 days from the end of the month in which deduction is made

TDS Certificate for Section 194S

Deductor i.e. payer shall issue a TDS Certificate to the deductee i.e. payee in Form 16A for TDS deducted on the transfer of virtual digital asset.

The deductee i.e. seller can claim the TDS Credit in the Income Tax Return. He/she can view the details of tax deducted under Section 194S in Form 26AS on the income tax website.

TDS Return for Section 194S

QuarterDue Date
April to June31st July
July to September31st October
October to December31st January
January to March31st May

Read Also: 30 Percent tax on Digital Assets, NFT, and Cryptocurrencies: Budget 2022

Section 194S: TDS @ 1% on Purchase Consideration of Virtual Digital Asset

In line with the existing TDS section 194IA requiring deduction of tax at source @ 1% on purchase of any immovable property exceeding rupees fifty lakhs in a year, the Finance Bill 2022, has proposed a new section 194S applicable w.e.f. 1.7.2022, mandating deduction of tax at source @ 1% on the payment of purchase consideration to a resident person, on the transfer of a virtual digital asset, as defined in another new section 2(47A).

Further, two threshold limits, for the amount of purchase consideration, have been prescribed, to be liable for deduction of TDS under this new section 194S.

For ‘specified person’, i.e. an individual or HUF, whose total sales or gross receipts do not exceed rupees one crore, in case of business, or rupees fifty lakhs in case of the profession, during the immediately preceding financial year, or, an individual or HUF, who does not have any income under the head business or profession, TDS under this new section 194S is required to be deducted only, if the amount of purchase consideration for the purchase of the virtual digital asset, exceeds rupees fifty thousand, during the financial year.

In the case of a person other than such specified person, including firms, LLPs, and companies, TDS under this new section 194S is required to be deducted only, if the amount of purchase consideration for the purchase of the virtual digital asset, exceeds rupees ten thousand, during the financial year.

It is also noteworthy to mention here that the Finance Bill 2022 has also proposed a new section 115BBH applicable w.e.f. 1.4.2022, mandating the taxability of the income arising from the transfer of virtual digital assets at a flat rate of 30% plus applicable surcharge and cess, with reduction only in respect of its cost of acquisition, and excluding all other reductions including adjustment of brought forward losses.

FAQs

Q.1- Do I need to pay Income Tax on the sale of cryptocurrency?

Ans:- Yes. Budget 2022 introduced the provision for taxation of profit on the sale of cryptocurrency and other VDAs at the rate of 30% under Section 115BBH. The crypto trader can neither claim any expenses nor set off or carry forward such loss. Further, the seller cannot claim Chapter VI-A deductions against such income. The income on the sale of cryptocurrency must be reported under the head Capital Gains in the Income Tax Return.

Q.2- Who will deduct TDS on cryptocurrency?

Ans:- The person responsible for making payment on the transfer of cryptocurrency or other VDAs must deduct TDS at the rate of 1% under Section 194S if the aggregate transfer amount in the financial year exceeds INR 10,000. However, if the payer is a specified person as per Section 194S, they should deduct TDS if the aggregate transfer amount in the financial year exceeds INR 50,000.

Q.3- How can I claim the tax credit of TDS deducted on my crypto income?

Ans:- If TDS has been deducted on your income from the sale of cryptocurrency under Section 194S, you can claim the tax credit of the same in the Income Tax Return. However, you can claim such tax credit only if the payer deposits the TDS with the government and files the TDS Return to report such TDS. You must collect the TDS Certificate from the payer.

For any query or complaint mail at [email protected]

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