On transfer of Virtual Digital Asset (VDA), you will have to pay 1 per cent TDS from July 1. TDS will be required when the buyer makes the payment of cryptocurrency to the seller. In the budget presented in February this year, Finance Minister Nirmala Sitharaman had announced TDS on transfer of cryptocurrencies. The CBDT had issued a circular in this regard on June 22.
In this circular, the CBDT had clarified that the onus of deducting TDS would lie on the buyer, exchange or broker. Now CBDT has again clarified how TDS will be deducted in peer-to-peer transactions. Peer-to-peer transactions are transactions that take place outside the exchange. In this, the buyer has to deduct TDS before making the payment to the seller.
If the transaction is done through the exchange, then the responsibility of deducting TDS will be on the exchange. It has also been clarified in the circular that the buyer will have to ensure that TDS is deducted before payment in cash or in kind or in some cash and in some kind.
Tax experts say that this will increase the tax burden on the buyers. Amit Maheshwari, tax partner, AKM Global, a tax consulting firm, said, “The earlier circular did not specify clearly about deducting TDS in case of peer-to-peer transactions. This loophole has been removed in the new circular.
If the transaction takes place outside the exchange, compliance will increase for both the buyer and the seller. In this the buyer will have to take care of the compliance.
Increasing compliance means that the buyer and seller will have to calculate TDS first. Then, he has to deduct. Apart from this, he will also have to deposit the amount of TDS with the tax department.
Maheshwari said, “However, buyer and seller will not have to apply for TAN under section 194S for depositing TDS. But compliance under section 206AA relating to non-furnishing of PAN. Also if Withholding once done under section 194S shall not require re-withholding under any other section.”
If the transfer takes place in Kind (something) instead of cash, both the buyer and seller will have to pay the tax and show proof of this to each otherbefore the exchange of VDA. Both will also have to comply with the necessary compliance and filing.
Whatis Peer-to-Peer Transaction?
A transaction that takes place directly between the buyer and the seller, in which no intermediary is involved, is called a peer-to-peer transaction. Intermediaries mean exchange or broker.
What is meant by exchange?
According to the Income Tax Department, ‘exchange’ means a person who operates an application or platform for transfer of VDA. This applicationmatches and completes the buy and sell trades. Most exchanges and crypto apps have made their clients aware of this rule.
ZebPay, a crypto exchange platform, has told its members,”We are making changes to our platform keeping in mind the date of implementation of the proposed tax rules.”It has said that ZebPay will deduct 1 per cent TDS at the time of trade execution.
This rule will come into effect from July 1. Then TDS will be deposited with the government on behalf of the buyer. You can adjust it with your tax liability at the time of filing income tax return.
According to ZebPay,the effect of TDS on your transaction will be as follows
If you place a sell order of one bitcoin for Rs 20,00,000
Order Value = Rs 20,00,000 Transaction Fee* (0.25% of 20,00,000) = Rs 5,000 TDS (1% of 19,95,000) = 19,950
Final Calculation (Actual Withdrawal Amount)=20,00,000-(5,000+19,950) =19,75,050* Transaction fees may vary depending on the tier you belong to.