SUMMARY
In a peer-to-peer transaction, the buyer will be required to deduct tax under section 194S of the Income Tax Act, the CBDT said
TDS will be calculated on the price of the VDA without the goods and services tax in P2P transactions
FM Nirmala Sitharaman, in her Budget 2022 speech, had proposed a 30% tax on income from VDAs, including cryptocurrency, and 1% TDS on VDA transactions
Issuing another clarification on tax deduction at source (TDS) for virtual digital assets (VDA), the Income Tax department on Tuesday (June 28) said that the buyer of a VDA will be liable for deducting tax in a peer-to-peer transaction.
“Thus, in a peer-to-peer (i.e. buyer to the seller without going through an exchange) transaction, the buyer (i.e. person paying the consideration) is required to deduct tax under section 194S of the Act,” said a clarification from the central board of indirect taxes (CBDT).
This also applies to a situation where exchange of VDA is partly in kind and cash is not sufficient to meet the TDS liability.
It further noted that the TDS will be calculated on the price of the VDA without the goods and services tax (GST). The department also said that the ‘deductor’ will have to furnish a quarterly statement for all such transactions.
If a transaction involving a VDA is taking place in kind or in exchange for another VDA, then the buyer will release the VDA only after ensuring that the seller has provided the proof of challan details of the TDS.
“In a situation where VDA “A” is being exchanged with another VDA “B”, both the persons are buyer as well as seller…Thus both need to pay tax with respect to transfer of VDA and show the evidence to other so that VDAs can then be exchanged,” the circular said.
The clarification brought a sigh of relief for individual buyers who had no way of knowing previously whether the seller had paid all the appropriate taxes before releasing the VDAs.
However, the circular didn’t clear the air around whether VDAs are goods or not. It, however, noted that once deducted under section 194S of the I-T Act, 1961, tax would not be required to be deducted under section 194Q of the Act.
Section 194Q pertains to individuals whose business turnover via purchase of goods exceeds INR 10 Cr per annum.
Finance Minister Nirmala Sitharaman, in her Budget 2022 speech, had proposed a 30% tax on income from VDAs, including crypto, and 1% TDS on VDA transactions. The 30% tax on VDAs came into effect on April 1, while the TDS provision is slated to come into force from July 1.
The aftermath of the imposition of 30% tax saw transaction volumes at Indian crypto exchanges decline by up to 60-70%. With just a day more to go, it remains to be seen what kind of effect will the 1% TDS have on Indian crypto markets.
