TDS will apply on sell order of crypto from July 1 onwards; here’s how it works

Following the introduction of a new section called 194S in the Income-Tax Act, 1961 by the Finance Bill 2022, on every sell order of crypto, 1 per cent of the transaction amount will be deducted as Tax Deducted at Source (TDS) effective from July 1, 2022. The new rule means that no TDS will be deducted from the buyer on buying crypto using INR while the seller of the crypto will be liable to pay TDS.  The crypto exchange will deduct this amount and deposit it with Income Tax Department which the seller can offset later. A TDS certificate will also be issued in due course.

“TDS will be calculated at 1 per cent of a transaction’s value. The seller would be able to offset this 1 per cent TDS from his or her total tax liability when he files for tax returns,” said Vikram Subburaj, CEO Giottus Crypto Platform. No TDS will be deducted if users deposit or withdraw money (or crypto) from an exchange.

How will TDS be deducted on crypto-crypto pairs? 

“In crypto-crypto pairs, both parties are considered as sellers of a crypto asset. So, a 1 per cent TDS will be deducted on both sides. For example, in case there is a trade on BTC/USDT pair where 0.1 BTC is sold for 2000 USDT, both parties will have to pay 1 per cent TDS on the crypto they will receive. In this case, from Buyer 0.001 BTC (1 per cent of 0.1 BTC) and 20 USDT (1 per cent of 2000 USDT) will be deducted as TDS. The crypto that is deducted as TDS will be liquidated to INR at the end of the day and this INR realised amount will be paid as TDS to the government. Giottus will be taking care of all the TDS operations mentioned above for trades executed in Giottus,” explained Subburaj.

Moreover, a higher tax rate of 5 per cent will be applicable if any user has not filed their Income Tax Return in the last two years and the amount of TDS is Rs 50,000 or more in each of these two previous years.  

However, in the case of Peer-to-Peer transactions, the treatment is different. 

“Buyer (other than specified persons) will be required to obtain tax deduction and collection account number (TAN) and file TDS returns if purchasing crypto of more than Rs.10,000 in a year. However, specified persons will need to deduct TDS only if the purchase of crypto is more than Rs 50,000 in a year. In such a case, TDS will have to be paid through Form 26QE, however there is no requirement to obtain TAN,” said Punit Agarwal, founder of KoinX.  

He explains that a specified person comprises an individual or HUF not having Income from Business/Profession or having Income from Business/Profession up to Rs.1 crore/Rs.50 lakh, respectively, in FY 2021-22.

 

How should an investor navigate this asset class? 

“We believe that crypto assets are still lucrative for long-term investors who minimise the number of trades. You can keep buying crypto with INR in regular intervals (TDS or capital gains tax does not apply in this scenario). When you are in profit and convert your crypto asset to INR again, you will have to pay TDS and offset it later in the year when you file your tax returns. Giottus will continue to offer easy (and free) ways to deposit INR into the platform so we recommend all our users to use INR pairs extensively,” said Subburaj.

“Buyers who acquire crypto through P2P will have to deal with TDS compliances which can be cumbersome, especially for retail traders. Sellers will find it difficult to trade in cryptocurrencies as effectively 1 per cent of sale value will be blocked as TDS thereby reducing the capital available for next trade,” said Agarwal. 

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