The Income Tax Department said on Wednesday that the 1% TDS on the transfer of virtual digital assets would be levied on the net value of the transaction and the burden of deducting the tax would fall primarily on the exchanges.
The Central Board of Direct Taxes (CBDT) has published a FAQ on the provisions of the TDS on virtual digital assets (VDAs) or cryptocurrencies, which was introduced in the 2022-23 budget and will come into effect on July 1.
The frequently asked questions (FAQ) indicates that in a transaction between individuals (direct buyer to seller), the buyer paying the consideration will have to deduct the tax withheld at source (TDS).
However, in the event that the transaction takes place through an exchange, the burden of deducting the TDS will be on the exchange crediting or making payment to the seller.
In the event that the credit/payment between the exchange and the seller is through a broker (and the broker is not the seller), there must be a written agreement that the broker will deduct the tax.
“The Exchange would be required to furnish a quarterly statement (on Form 26QF) for all such quarterly transactions on or before the due date prescribed in the Income Tax Rules 1962,” the CBDT said. .
The FAQ further states that for the transfer of ARVs owned by exchanges, the buyer or their broker would be required to deduct the tax.
Alternatively, the exchange may enter into a written agreement with the buyer or its broker that, in respect of all such transactions, the exchange would pay the tax on or before the due date for that quarter.
With respect to in-kind or in-exchange transactions from another VDA, the FAQ states that the exchange will enter into a written contractual agreement with buyers/sellers for tax deduction.
“In these situations, the person responsible for paying that consideration is required to ensure that the tax to be deducted has been paid in respect of that consideration, before releasing the consideration,” he added.
On whether the consideration for the transfer of VDA should be on a gross basis after including GST/commission or on a “net basis” after excluding these items, he clarified that TDS will be on the consideration “ net” after excluding the GST/expenses levied by the deductible for service rendered.
Commenting on the FAQ, AKM Global Tax Partner Amit Maheshwari said generally that the responsibility to deduct TDS has been put on exchanges which will increase the regulatory and compliance burden for them.
“Exchanges need to further disclose these transactions in their tax filings and keep proper records. However, it would be useful for both buyers and sellers, as they can enter into contracts with the exchange to pass on the responsibility of deducting tax on their behalf. in VDA to VDA transfers or otherwise as well,” Maheshwari added.
Budget 2022-23 clarified the collection of income tax on crypto assets. Since April 1, a 30% income tax, plus tax and surcharges, has been levied on such transactions in the same way as it treats winnings from horse racing or other speculative transactions.
A 1% TDS on payments over Rs 10,000 to virtual currencies has also been introduced, which will come into effect from July 1.
The threshold limit for TDS would be Rs 50,000 per annum for specified persons, which includes individuals/HUFs who are required to have their accounts audited under the Information Technology Act.
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