The Income Tax department will issue a new form, Form 26Q, for TDS (tax deducted at source) on crypto asset transactions

Bitcoin and Crypto Crypto regulations Thursday, June 23, 2022 - 19:56

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Any income generated in a financial year by a person or an entity is liable for taxation as prescribed by the income tax laws of the country. For a long time, crypto assets were largely untouched by the regulatory authorities in India due to its complexity. As mainstream adoption of crypto rose, the industry was met with unfavorable treatment initially.  Banks were notified by the Reserve Bank of India (RBI) in 2018 to block crypto transactions. This was struck down by the Supreme Court in 2020. From then, India has come a long way in recognizing the crypto industry as a legitimate way of generating income by introducing new tax laws in 2022. 

The laws introduced by the Union Ministry of Finance that mattered the most to crypto stakeholders are: 

  1. 30% capital gains tax on all crypto transactions, that took effect on April 1, 2022
  2. 1% TDS liability which will take effect on July 1, 2022

Finance Act 2022 has introduced the new section, 194(S), for crypto.

In today’s article, we will look at the most important Q&As surrounding the clarification given by the I-T Department on the 1% TDS. 

  • What is 1% TDS? 

TDS is the tax deducted at the source paid to the government on behalf of the deductee. Exchanges can collect taxes on behalf of sellers on their platform. It will be calculated at 1% of a transaction’s value. The seller would be able to offset the 1% TDS from his or her total tax liability later.

  •  How will TDS be deducted on Crypto-INR pairs?

No TDS will be deducted on buying crypto with INR. On every sell order, 1% of the total transaction will be deducted as TDS.

  • How will TDS be deducted on Crypto-Crypto pairs? 

In a situation where crypto asset ‘A’ is being exchanged with another crypto asset ‘B,’ both parties become sellers of a crypto asset. So, a 1% TDS will be deducted on both sides. For example, in case there is a trade on BTC/USDT pair, both parties will have to bear the 1% TDS at the time of transaction. 

This year, Form No. 26Q includes provisions for reporting such transactions.

  • Who is required to deduct tax when the transfer of crypto assets takes place?

If the transaction is peer-to-peer (i.e. direct buyer to seller without an intermediary), the buyer (i.e person paying the sum) is required to deduct tax. 

However, if the transaction is taking place on or through an exchange, the exchange can take the primary responsibility to deduct tax. TDS guidelines also apply to international and  decentralized exchanges (DEXes) though it is not certain if they will implement this. 

  • Would 1% TDS be deducted if users deposit/withdraw money (INR) to/from exchange? 

No TDS will be deducted in both cases. 

  • Who is exempted from the 1% TDS?

No TDS is applicable if the payer is a specified person (an individual or Hindu Undivided Family (HUF), who is not subject to tax audit) and aggregate value of consideration is less than ₹50,000 during the financial year.

While 1% TDS might be an immediate concern for traders, it is not much of a concern for investors since they primarily aim to hold for longer time periods preventing impulsive trading. In any case, TDS can be reclaimed from the I-T Department later. 

All Indian exchanges, including Giottus, are expected to take steps to ensure TDS compliance by July 1, 2022. Giottus will continue to provide the best customer service in terms of tax reporting and compliance.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.

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