India issues clarifications on tax guidelines for crypto transactions

Today, CBDT (the Central Board of Direct Taxes) issued guidelines to remove complications in terms of new Section 194S which will come into effect from July 1, 2022.

What is Section 194S?

Section 194S was included in the Income Tax Act via Finance Act 2022. It commands a deduction of 1% TDS on the transfer of cryptocurrency and other virtual digital assets.

Who is liable to deduct TDS while transferring cryptocurrency through an exchange?

As per the circular, the exchange itself is liable to deduct the TDS. It may be deducted under section 194S of the Act by the exchange which is making or crediting a payment to the seller.

In case a broker owns the VDA, he will be considered the seller. Thus, the amount of consideration being paid or credited to him by the Exchange is also subject to the deduction under section 194S.

What will happen when a broker is not the seller?

As per the circular, in the case where the payment/credit between the seller and Exchange is via a broker (where the broker is not the seller), the responsibility to deduct tax shall be on both the broker and the Exchange.

However, if the Exchange and broker sign a written agreement agreeing that the broker shall be deducting tax on such payment/credit, then the broker alone may deduct the tax under section 194S.

How will TDS be applied in case of transferring cryptocurrency for another crypto?

As per the circular, if an individual is transferring a cryptocurrency asset to another individual in exchange for another crypto then both of them will be purchasers and sellers. In this scenario, both of them will have to show proof of the exchange of the virtual digital assets and pay the tax.

Author: Diksha Khiatani

A writer by day and a reader at night. Emerging from an Engineering background, Diksha is a travel freak and anxious to explore different cultures and religions. Inclined towards the off-beat places, she wishes to uncover the secrets on her Scooty (if possible). She always grabs some time to take a quick nap, listen to music, skating and eat a brownie.

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