TDS on Cryptocurrency, NFT, VDAs – Section 194S

What is Section 194S for TDS on Cryptocurrency?

Under Budget 2022, Finance Minister Nirmala Sitharaman introduced Section 194S to impose TDS on the transfer of cryptocurrency and other VDAs (Virtual Digital Assets). Section 194S is effective from 1st July 2022 and not 1st April 2022. To trace the transactions of VDAs and cryptocurrency, the government introduced this provision of deducting TDS at 1% in the case of transfer of a VDA if the aggregate value exceeds INR 10,000 during the financial year.

The Budget also introduced the provision for tax on cryptocurrency, NFT, and VDA at the rate of 30% under Section 115BBH. The crypto trader can neither claim any expenses nor set off or carry forward such loss. Further, the taxpayer cannot claim Chapter VI-A deductions against such income.

What is a Virtual Digital Asset (VDA)?

TDS under Section 194S must be deducted on the transfer of a VDA i.e. Virtual Digital Asset. VDA covers the following:

  • Cryptocurrency – information or code or number or token generated through cryptographic means or otherwise
  • NFT – Non-Fungible Token or any other token of similar nature
  • Any other digital asset notified by the central government in the official gazette

When & Who shall deduct TDS u/s 194S for TDS on Cryptocurrency?

TDS should be deducted on the transfer of the VDA (Virtual Digital Asset) if the aggregate amount during the financial year exceeds the threshold limit of INR 50,000 in the case of specified persons or INR 10,000 in the case of others. Thus, the person responsible for making the payment i.e. the payer must deduct TDS on the transfer amount before making the payment to the payee. The deductor should deduct TDS only if the payee holds the status of a resident in India.

The threshold limit of INR 50,000 applies in the case of specified persons. Specified persons cover Individual or HUF having:

  • No income from business or profession OR
  • Business Income of up to INR 1 Cr or the Profession Income of up to INR 50 lacs

TDS Rate u/s 194S for TDS on Cryptocurrency

The deductor should deduct TDS under Section 194S at the rate of 1% of the transfer amount at the time of the payment for the transfer of VDA (Virtual Digital Assets).

If the payer makes the payment in kind or for exchange of another VDA or pays partly in cash and partly in kind, they must make sure that they deposit the TDS with the government before making the payment.

If the payer is a specified person, there is no requirement of obtaining TAN as per Section 203A of the Income Tax Act. Further, if the payer is a specified person, the provision to deduct TDS at higher rate as per Section 206AB for non-filers of ITR is not applicable
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If the payer is a specified person, there is no requirement of obtaining TAN as per Section 203A of the Income Tax Act. Further, if the payer is a specified person, the provision to deduct TDS at higher rate as per Section 206AB for non-filers of ITR is not applicable

Due Date to deposit TDS under Section 194S

Particulars Time Limit to deposit TDS
If the amount is credited in the month of March

On or before 7th April for Government Deductor
On or before 30th April for Other Deductor

If the amount is credited in a month other than March Within 7 days from the end of the month in which deduction is made

TDS Certificate for Section 194S

Deductor i.e. payer shall issue a TDS Certificate to the deductee i.e. payee in Form 16A for TDS deducted on the transfer of virtual digital asset.

The deductee i.e. seller can claim the TDS Credit in the Income Tax Return. He/she can view the details of tax deducted under Section 194S in Form 26AS on the income tax website.

TDS Return for Section 194S

The Deductor i.e. payer is liable to deduct tax under section 194S of the Income Tax Act. They shall file quarterly returns in Form 26Q within the following due dates:

Quarter Due Date
April to June 31st July
July to September 31st October
October to December 31st January
January to March 31st May

The applicability of TDS under Section 194S requires more clarity. The seller of Virtual Digital Asset is not known to the buyer of the Virtual Digital Asset since the trading happens over a digital exchange. Section 194S mandates the deduction of TDS by the person responsible for making the payment on the transfer of a virtual digital asset. Thus, the income tax department must clarify the role of crypto exchanges and if they are required to deduct TDS on the sale transactions of cryptocurrency and other VDA. Further, in the case of payment in kind, determining the Fair Market Value (FMV) of the VDA would be difficult since different exchanges have different FMVs. Section 194S is applicable from 1st July 2022.

FAQs

Do I need to pay Income Tax on the sale of cryptocurrency?

Yes. Budget 2022 introduced the provision for taxation of profit on sale of cryptocurrency and other VDAs at the rate of 30% under Section 115BBH. The crypto trader can neither claim any expenses nor set off or carry forward such loss. Further, the seller cannot claim Chapter VI-A deductions against such income. The income on sale of cryptocurrency must be reported under the head Capital Gains in the Income Tax Return.

Who will deduct TDS on cryptocurrency?

The person responsible for making payment on the transfer of cryptocurrency or other VDAs must deduct TDS at the rate of 1% under Section 194S if the aggregate transfer amount in the financial year exceeds INR 10,000. However, if the payer is a specified person as per Section 194S, they should deduct TDS if the aggregate transfer amount in the financial year exceeds INR 50,000.

How can I claim tax credit of TDS deducted on my crypto income?

If TDS has been deducted on your income from sale of cryptocurrency under Section 194S, you can claim the tax credit of the same in the Income Tax Return. However, you can claim such tax credit only if the payer deposits the TDS with the government and files the TDS Return to report such TDS. You must collect the TDS Certificate from the payer.

Got Questions? Ask Away!

  1. @Latesh_Bayad, there are two schools of thought for taxes on crypto, some believe it should be taxed as capital gains and others believe it should be considered as income from other sources.

    If the cryptocurrency is held as an Investment and being exchanged for Fiat Money it may be treated as capital gains.
    There are some articles which you might find useful

  2. Hey @Shama,

    The taxability of Cryptocurrencies arises under Income from Capital Gains if it is held as investment or trading. The cryptocurrency shall be considered as a Capital Asset and the taxability shall arise in the hands of person owning the same.
    In Your case, since, Person A is owner of the cryptocurrencies; so any gains arising from sale of cryptocurrencies shall be taxable in the hands of Person A as the data/KYC registered with exchange is that of Person A. It shall make no difference if the proceeds are received in Joint Savings A/c which is held along with Person B.
    Person B shall ignore the same proceeds in his ITR as Person A is paying the taxes in his ITR.

    Hope it helps!

  3. Budget 2022 brings taxes on Crypto, NFTs and other Virtual Digital Assets

  4. Hi @Murali_Krishnan_S, if you are receiving profits in India then you will be taxed at 30% + 4% HEC and if you are receiving profits outside of India, then they are not taxable in India. You can also go through the blog attached below which will help you how the new budget affects you crypto trading and profits. Let me know if you need any further clarification.

  5. Irrespective of my tax slab ; crypto is taxed @30% . ?

    I mean if my income is zero and i made profit from crypto trading Rs. 1 lakh ; i pay tax 30,000/= ? Or i’ll get STGC excemption of 1 lakh ?

    Or crypto is taxed 30% based on my tax slab ?

    In this case ; if my income is 5 lakhs including 1 lakh income from crypto trading ; i declare crypto income in first slab which is taxfree upto 2.50 lakh !

    What is the rule ?

  6. Hi @HIREiN,

    Unlike incomes such as salary, house property, capital gains from equity shares, mutual funds, ETFs etc. the basic exemption limit rule does not apply to income from Crypto, NFTs, and other virtual digital assets.
    Meaning, that even if your total income is below the basic exemption limit you will have to pay tax on your earnings from crypto.

  7. Hey @Rakesh_Sharma

    There is ambiguity on how to tax cryptocurrency since the Govt doesn’t consider Cryptocurrency as a legal tender. There are 2 schools of thought that discuss can be taxed under Income from Other Sources or Capital gains.

    To understand more about the taxability of Bitcoin, please refer to this article.

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