TDS on Cryptocurrency Transactions Explained with Examples: New Crypto Tax from July 1

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The Indian government shook the cryptocurrency industry when Finance Minister Nirmala Sitharaman announced a tax on Virtual Digital Assets (VDAs). There are various layers of taxation associated with cryptocurrency and one of those layers would be TDS or Tax Deduction at Source. The new Finance Bill of 2022 has introduced a new clause named 194S in the Income Tax Act, 1961.

As per the new law, the government will levy 1% TDS on any consideration paid for transfer of VDA. Every time a buyer buys a crypto, they have to deduct and withhold 1% of the transaction value as TDS. This amount will have to be given further to the government.

The new law governing TDS tax on VDA will come into effect from July 1. Only crypto trades made after June 30th 11:59 pm will be subject to TDS. However, if you have placed an order before 1st July 2022, but the trade takes place on or after 1st July 2022, TDS provisions will be applicable.

Where will TDS be applicable?

TDS will be deducted on every trade where a crypto asset is exchanged for INR or any other crypto asset. However, there are various permutations and combinations of a business that you will need to understand to get an understanding of the new tax.

Situation 1: No TDS will be deducted from the buyer for buying crypto using INR, whereas seller of crypto asset will be liable to pay TDS.

eg.: A buyer buys a crypto coin for Rs 100. The seller gets only Rs 99 (after deducting 1% TDS). However, the buyer receives a full token.

position 2: If a crypto asset is purchased by paying with another crypto asset, i.e., trading one crypto asset for another, TDS will be payable by both the parties.

eg: If 1 crypto coin is sold for 10 ETH. The crypto coin seller receives 10 ETH by paying 1.01 BTC (after adding 1% TDS). Buyer receives only 0.99 Crypto Coin (after 1% TDS deduction).

Situation 3: When it comes to peer-to-peer (P2P) trades. 1% TDS will be deducted before placing the USDT sell order. P2P USDT buyer will not have to pay any TDS.

Note: Depending on the transaction, 1% TDS will be deducted from the receivable INR or crypto amount.

extra condition

As per section 206AB of the Income Tax Act, 1961, if the user has not filed his income tax return in the last 2 years and the amount of TDS in each of these two previous years is ₹50,000 or more, TDS will be deducted (Crypto- for related transactions) at 5%. for simplicity.

Payment of TDS INR . In

Whatever TDS claims by the government, it has to be paid in INR. If any TDS is collected in crypto, it has to be converted into INR first.

Post TDS on Cryptocurrency Transactions Explained with Examples: The new crypto tax from 1st July first appeared on BGR India.



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