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TDS u/s 194S on CRYPTO/VDA : ISSUES & CLARIFICATIONS

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TDS u/s 194S on CRYPTO/VDA : ISSUES & CLARIFICATIONS
Vivek Jalan By: Vivek Jalan
June 27, 2022
All Articles by: Vivek Jalan       View Profile
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The Central Board of Direct Taxes issued circular 13 of 2022 dated 22.06.2022, detailed guidelines on the tax deducted at source (TDS) rule for virtual digital assets (VDAs) such as cryptocurrencies, and laid down the various scenarios under which tax would be applicable and on whom the onus of deduction would lie.

Let us understand the issues queries which have been clarified and the way forward on taxation of VDA which was introduced vide the Finance Act, 2022

Definition of Virtual Digital Asset (VDA):

Sec 2(47A) of Income Tax Act,1961 defines VDA as –

  • Information or code, etc

  • Providing a digital representation of value

  • Having inherent value

Section 194S- Legal Provisions:

Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to 1% of such sum as TDS:

Provided that in a case where the consideration for transfer of VDA is-

  • wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or

  • partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer,

the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset.

Applicability of Section 203A and 206B

Sec 203A and 206AB shall not apply to a specified person – No TIN requirement/ No Higher Rate for non filing of returns

Exceptions

No TDS in a case, where-

  • the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed Rs.50000/- during the financial year; or

  • the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed Rs.10000/- during the financial year.

"specified person" means a person,-

  • Individual/ HUF - whose total sales/ gross receipts/ turnover from the B/P does not exceed Rs.1 Cr/ Rs.50L, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;

  • Individual/ HUF – With no PGBP Income

Remarks

  • 194S prevails over 194O

  • Where any sum referred to in 194S(1) is credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.

In light of Circular 13 of 2022 dated 22.6.2022, There are some important Clarifications which may have an impact going forward -

  • Is VDA ‘goods’ – No Comments. As per information, The Central Economic Intelligence Bureau (CEIB) has proposed categorising cryptocurrencies as intangible assets and applying GST on all the crypto transactions. Since the government has not yet defined its taxability and the proposal is under discussion, a general rate of 18% may likely become applicable going forward.

  • 194Q or 194S – 194S prevails

  • TDS u/s 194S on “Gross including GST” or “Net excluding GST” - Net excluding GST

  • TDS u/s 194S on “service charges on VDA” – No TDS u/s 194S on “service charges on VDA”

Various Case Scenarios

  1. Transfer of VDA taking place on or through an Exchange and seller/broker owns the VDA –

    • Exchange should deduct TDS incase Seller is the owner himself

    • Exchange should deduct TDS incase broker is the owner of the VDA

    • Incase broker is intermediary, then exchange/broker should deduct TDS as per their agreement

    • Exchange has to report all these transactions in Form 26QF quarterly

  2. Transfer of VDA taking place on or through an Exchange and Exchange owns the VDA –

    • Primary responsibility of the Buyer to deduct TDS

    • Exchange/broker may deduct TDS as per their agreement

    • Exchange has to report all these transactions in Form 26QF quarterly & Pay the tax before the return is filed

  1. Incase payment is in kind/ in exchange of another VDA –

    • TDS is by the ‘person responsible for paying the consideration’

    • Payment has to be made only after ‘proof pf payment’ of TDS is received

  2. “VDA A” for “VDA B” between peers

    • TDS is by the ‘person responsible for paying the consideration’

    • Buyer of VDA A has to deduct TDS before transferring VDA B & Vice-versa

    • Challan details and Form 26DF needs to be filled

    • Specified persons need to fill Form 26QE

  3. “VDA A” for “VDA B” through exchange -

    • Exchange may deduct TDS as per their agreement

    • Exchange to deduct TDS for ‘both legs’ of the transaction

    • Exchange has to report all these transactions in Form 26Q quarterly & Pay the tax before the return is filed

    • No liability of TDS on buyer/seller

    • Incase TDS is deducted in kind (Eg. 1% Monero for 1% Deso) -

      1. Trail to be maintained for ‘non-primary VDA’ TDS

      2. Convert to ‘primary VDA’ immediately – which can be converted to INR

      3. Time stamps of timing of orders to be maintained to ensure conversion of VDAs to be done immediately

    • All TDS for 1 day (0:00 to 23:59)

    • The accumulated balance of primary VDAs at 00.00 hours will be converted into INR based on the market rate existing at that time.

    • Customer will be issued a contract note over email which will include the amount of tax withheld in kind under section 194S and the amount of INR realized from such tax withheld.

    • There would not be any further TDS for converting the tax withheld in kind in the form of VDA into INR or from one VDA to another VDA and then into INR

  4. Payment for VDA by ‘payment gateways’. Whose liability for TDS?

    • Liability for TDS is on the buyer

    • Undertaking to be taken from the buyer that TDS amount has been deducted and paid The threshold would be applicable from 1st July 2022 for credits done or payments made

Please find the below link for accessing the relevant Circular No 13 of 2022 dated 22nd June 2022:

https://www.incometaxindia.gov.in/communications/circular/circular-no-13-2022.pdf

 

By: Vivek Jalan - June 27, 2022

 

 

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