- What is Section 194S for TDS on Cryptocurrency?
- What is a Virtual Digital Asset (VDA)?
- When to deduct TDS u/s 194S for TDS on Cryptocurrency?
- Who shall deduct TDS u/s 194S for TDS on Cryptocurrency?
- Case 1: Peer to Peer (P2P) transfer of VDA
- Case 2: Transfer of VDA takes place on or through an Exchange and the VDA is owned by a person other than the Exchange:
- Case 3: Transfer of VDA takes place on or through an Exchange and the VDA is owned by such Exchange
- Case 4: Transfer of VDA takes place where the consideration for transfer of VDA is in kind
- TDS Rate u/s 194S for TDS on Cryptocurrency
- Due Date to deposit TDS under Section 194S
- TDS Certificate for Section 194S
- TDS Return for Section 194S
- FAQs
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 to 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. 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
Who shall deduct TDS u/s 194S for TDS on Cryptocurrency?
Section 194S mandates the deduction of TDS by the person responsible for making the payment (i.e buyer) on the transfer of a virtual digital asset. However, 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. The applicability of TDS under Section 194S required more clarity. Thus, the income tax department issued a circular to clarify the role of crypto exchanges and the brokers with respect to deduction of TDS on the sale transactions of cryptocurrency and other VDA. Lets understand the liability to deduct TDS of parties involved in different scenarios.
Case 1: Peer to Peer (P2P) transfer of VDA
Case 2: Transfer of VDA takes place on or through an Exchange and the VDA is owned by a person other than the Exchange:
Scenario 1: Buyer would be crediting or making payment to the Exchange (directly or through a broker).
Scenario 2: The credit/payment between Exchange and the seller is through a
broker (and the broker is not seller)
Case 3: Transfer of VDA takes place on or through an Exchange and the VDA is owned by such Exchange
Scenario 1: Buyer would be crediting or making payment to the Exchange through a broker
Scenario 2: Buyer would be crediting or making payment to the exchange directly
Case 4: Transfer of VDA takes place where the consideration for transfer of VDA is in kind
Scenario 1: The transaction is not through an Exchange
Scenario 2: The transaction is through an Exchange
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.
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 |
| 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 |
FAQs
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.
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.
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.
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