Government Collects INR 60 Cr From TDS On Virtual Digital Assets Transactions

The Centre has so far collected INR 60.46 Cr from tax deduction at source (TDS) involving transfer of virtual digital assets (VDAs). 

“Post insertion of Section 194S in the Income-tax Act, 1961 through Finance Act, 2022, a total of 318 direct tax challans having TDS code 194S have been received having total amount of INR 60.46 Cr,” Minister of State (MoS) for Finance Pankaj Chaudhary informed the Parliament. 

Section 194S, which was inserted into the Income Tax Act, 1961 via the Finance Act, 2022, specifies norms for deduction of TDS with regards to transactions related to VDAs, including cryptocurrencies and other digital assets. 

Responding to a separate question, the minister reiterated that crypto assets are unregulated in the country, adding that the government does not register foreign crypto exchanges.

“Crypto assets are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only with significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards,” said Chaudhary in response to a question about why the Centre is yet to formulate regulations for crypto space. 

The 1% TDS on transactions related to VDAs became effective in July this year. Prior to that, the government also imposed a 30% tax on gains from cryptocurrencies, which came into effect in April. 

The aftermath has seen startups and investors rally against the high rates of interest citing stifling of the crypto industry in the country. With the government set to present the new Budget in a couple of months, industry bodies have been lobbying the centre to slash the TDS on transfer of VDAs.

IndiaTech.org recently sought reduction of the said TDS rate to 0.01% from 1%. 

While the government has been pitching for a concerted global approach for crypto regulations, the Reserve Bank of India (RBI) has been vehemently against private cryptocurrencies and is currently piloting the country’s first retail and wholesale central bank digital currency (CBDC). 

Days ago, RBI Deputy Governor T Rabi Sankar sought the collection of more crypto-related data before drafting regulations to avoid issuing ‘wrong set of prescriptions.’

Concerns also remain over misuse of virtual digital currencies and, with 1% TDS, the Centre aims to keep a track of crypto transactions and dissuade users from investing in the highly volatile market. 

On Monday, the Centre informed the Parliament that the Enforcement Directorate has so far frozen crores of rupees in connection with cryptocurrency-related frauds involving online gaming platforms. 

Amidst the crypto winter, the 1% TDS has further added to the misery of retail investors. While the government has been apprehensive about the space for multiple reasons, it is unlikely to soften its stance on the 1% TDS rate.