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In the ever-evolving landscape of finance and taxation, it's important to stay updated on the latest regulatory changes. One such noteworthy addition to the Income Tax Act unveiled in the 2022 budget by Finance Minister Smt. Nirmala Sitharaman is Section 194S for TDS. This new TDS section ushers in an era of taxation for virtual digital assets (VDAs) and cryptocurrencies, designed to enhance government oversight of these transactions. In this guide, we will explore all that you must know about the taxation of Virtual Digital Assets.
Finance Minister Smt. Nirmala Sitharaman introduced TDS new section 194S in budget 2022. This section focuses on imposing TDS on the transfer of virtual digital assets and cryptocurrencies. This was introduced to allow the government to track such transactions. Therefore, the government introduced this new provision of deducting 1% in the case of the transfer of a VDA if the value is more than Rs.10,000.
A VDA or Virtual Digital Asset, as defined by section 194S of the Income Tax Act, covers the following -
TDS under section 194S is applicable when the payment made for the transfer of VDA is more than Rs.50,000 for specified persons and Rs.10,000 in other cases. A specified person is -
The provision for VDA under section 194S makes it mandatory for any person who makes a payment for the transfer of a VDA to a resident to deduct TDS @1% at the time of making the payment or at the time of credit to the resident’s bank account, whichever is earlier. TDS deducted under section 194S should be reported to the government in Form 26Q. Also, TDS is only required to be deducted if the receiver is an Indian resident.
The liability to deduct TDS under section 194S is different in different cases -
Case 1: Buyer would make payment to the exchange (directly or through a broker)
The exchange is the primary person responsible for deducting TDS.
Tax can be deducted only by the exchange
The exchange has to file form 26Q.
Case 2: The payment made between the seller and exchange is made through a broker
Both the exchange and the broker are the primary people responsible for deducting TDS.
Tax can be deducted only by the broker if both of them have a written agreement that the broker will deduct the TDS.
The broker has to file Form 26Q, and the exchange has to file Form 26QF.
Case 1: Buyer makes payment to the exchange through a broker
The broker is the primary person responsible for deducting TDS
The exchange can pay the tax if there is a written agreement between both parties that the exchange will deduct the TDS.
The exchange has to file Form 26QF and the ITR.
Case 2: Buyer credits or makes payment to the exchange directly
The buyer is the primary person to deduct TDS
The exchange can pay the tax if there is a written agreement between both parties that the exchange will pay tax.
Form 26QF and ITR have to be filed by the exchange.
Case 1: The transaction is not made through an exchange
The buyer is the primary person responsible for deducting TDS
The buyer gives the consideration in kind if the seller provides the challan.
The buyer has to file Form 26Q and Form 26QE
Case 2: The transaction is through an exchange
The exchange is the primary person responsible for deducting TDS
The exchange can deduct the tax based on a written contractual agreement between the affected parties.
The exchange has to file Form 26Q.
A TDS certificate is issued by the deductor to the deductee in Form 16A for the TDS that is deducted on the transfer of VDA. The deductee can claim a credit of the same at the time of filing the ITR.
The introduction of this section establishes clear guidelines for TDS (Tax Deducted at Source) on these transactions, signifying the government's commitment to creating a more regulated financial ecosystem.
Whether you're a buyer, seller, exchange, or broker, it's essential to adhere to these regulations, ensuring timely filing of TDS returns and staying informed about the latest tax updates. If you have any questions regarding TDS u/s 194S, you can consider taking professional advice.
If the payment is made in March, then the time limit for depositing TDS will be -
If the amount is deducted in any month other than March, then the due date will be within 7 days from the end of the month in which the deduction was made. For example, if the TDS was deducted on 25th April, then the due date for depositing the TDS will be 7th May. similarly, if the TDS is deducted on the 5th of April, then the due date for depositing the TDS will be the 7th May.
There is no need to deduct TDS under the following conditions -
The due dates for filing a TDS return are as follows -
