The Central Board of Direct Taxes has issued detailed guidelines for facilitating tax deducted at source (TDS) on virtual digital assets (VDA) or crypto assets, which will require the date of transfer and mode of payment to be specified.
From July 1, TDS of 1% will be levied on payments towards virtual digital assets or cryptocurrencies beyond Rs 10,000 in a year, as the Finance Act 2022 has introduced Section 194S in the income tax (I-T) Act.
To remove difficulties, the department has explained various scenarios through six questions.
The transactions must be disclosed in the tax return under the new regime, and a paper trail must be maintained.
This would benefit both buyers and sellers because they could enter into contracts with the exchange to pass the responsibility to deduct tax on their behalf on virtual asset transfers or otherwise as well.
“The CBDT has pragmatically covered the practical scenarios to facilitate smooth implementation of the withholding on consideration for transfer of VDAs. Broadly, the responsibility to deduct TDS has been put on the exchange which will increase the regulatory and compliance burden for them,” said Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm to a news channel.
In a case where the transfer of VDA takes place on or through an exchange and the VDA being transferred is owned by such exchange, the primary responsibility to deduct tax under section 194S of the Act, in this case, remains with the buyer or his broker, as an alternative the exchange may enter into a written agreement with the buyer or his broker that regarding all such transactions the exchange would be paying the tax on or before the due date for that quarter.
The Exchange would be required to provide a quarterly statement (in Form No. 26QF) for all such transactions during the quarter on or before the I-T rules’ due date.
The finance ministry is also working on a FAQ on cryptocurrency taxation, which will provide additional clarification on the application of income tax on virtual digital assets.