Cryptocurrencies are slowly gaining popularity among investors and regulators alike in India.The country saw crypto funding and blockchain investments worth Rs 4,950 crore in 2021 alone, as per industry tracker Tracxn. Gains from crypto transactions currently face taxation of 30 percent, as part of the new tax regime that went into effect on April 1. In July, crypto transfers will also attract a Tax Deducted at Source (TDS) of 1 percent. To offer more clarity, the Central Board of Direct Taxes (CBDT) issued an FAQ, detailing all the guidelines on the crypto TDS. Crypto exchanges in the country have welcomed the FAQ, claiming it would make things easier and clearer for “both buyers and exchanges.”
First, let us understand the current taxation structure for cryptos in India.
Cryptocurrencies are currently clubbed under Virtual Digital Assets (VDAs) in the country. Under the new tax regime, all gains from VDA sales will face a tax of 30 percent. Keep in mind that there are no thresholds under which the VDA tax won’t be imposed. This means that even if a taxpayer’s total income is below the threshold limit of Rs 2.5 lakhs, the gains will be taxable.
Crypto tax in India: When will TDS be imposed?
A TDS of 1 percent will be charged on all VDA transactions starting July 1, when the new Section 194S will officially become a part of the Income Tax Act, as proposed by the Finance Bil 2022 earlier this year.
Crypto tax in India: Is there any limit on transaction amount?
As per CBDT's FAQ, the 1 percent TDS will be applicable on VDA payments over Rs 10,000 during a financial year. The threshold limit will be Rs 50,000 per year for “specified persons,” who are defined by the circular as individuals or Hindu Undivided Family (HUF) who are required to get their accounts audited under the I-T Act.
Crypto tax in India: Will TDS be applied on payments made before July 1?
As per the circular, “Sum which has been credited or paid before 1st July 2022 would not be subjected to tax deduction.”
Crypto tax in India: Who will deduct TDS when transferring VDAs via exchanges?
“The Exchange which is crediting or making payment to the seller (owner of the VDA being transferred)” will deduct TDS, the circular states.
Crypto tax in India: What if the broker owns the VDA?
If a broker owns a VDA, “it is the broker who is seller,” the CBDT circular states. “Hence, the amount of consideration being credited or paid to the broker by the Exchange is also subject to tax deduction under section 194S of the Act.”
Crypto tax in India: Who will deduct TDS when a transaction is done via an exchange through a broker who is not the seller?
In such cases, the guidelines state that “the responsibility to deduct tax under section 194S of the Act shall be on both the Exchange and the broker. However, if there is a written agreement between the Exchange and the broker that broker shall be deducting tax on such credit/payment, then broker alone may deduct the tax under section 194S of the Act. The Exchange would be required to furnish a quarterly statement (in Form no 26QF) for all such transactions of the quarter on or before the due date prescribed in the Income-tax Rules, 1962.”
Crypto tax in India: What if the crypto exchange is also the owner of the VDA?
The buyer will have to deduct the TDS in such cases. Crypto exchanges may also choose to “enter into a written agreement with the buyer or his broker that in regard to all such transactions the Exchange would be paying the tax on or before the due date for that quarter. The Exchange would be required to furnish a quarterly statement (in Form No. 26QF) for all such transactions of the quarter on or before the due date prescribed in the Income-tax Rules, 1962. The Exchange would also be required to furnish its income tax return and all these transactions must be included in such return.”
Crypto tax in India: What if a VDA is transferred in exchange for another VDA?
The guidelines state, “In a situation where VDA “A” is being exchanged with another VDA “B”, both the persons are buyer as well as seller. One is buyer for “A” and seller for “B” and another is buyer for “B” and seller for “A”. Thus both need to pay tax with respect to transfer of VDA and show the evidence to other so that VDAs can then be exchanged.”
Crypto tax in India: Will payment gateways deduct TDS?
No. The circular states, “The payment gateway will not be required to deduct tax under section 194S of the Act on a transaction, if the tax has been deducted by the person (‘XYZ’) required to make deduction under section 194S of the Act.”
Crypto tax in India: How crypto trading platforms are reacting to the CBDT FAQ?
The CBDT FAQ has garnered a positive reaction from leading crypto exchanges in India, with some even going to the extent of offering 100 percent cashback equal to a TDS deduction.
Prashant Kumar, the founder of crypto trading platform weTrade, told ABP Live, “We have decided that we will take 100 percent burden of TDS from our customers by giving them instant cashback equal to the TDS deduction thereby making it even easier for them to comply with regulations. weTrade makes crypto investments easy and rewarding, and by turning it into a TDS-free platform, we hope our customers love us even more.”
“We at weTrade wholeheartedly welcome the move by the finance ministry around the clarification that was issued yesterday in regards to TDS on VDA. The intention behind is positive and it helps bring further transparency around crypto investments by making them easily traceable, which will help grow the industry in the long run with support from regulators,” said Kumar. “What is especially commendable is that the government has ensured common investors are not hassled at all while investing by putting the onus of adherence on exchanges, and clearly articulating the role of exchanges and brokers. The 1 percent TDS is only applicable while selling which is nonetheless claimable in next year's filings.”
“We as a part of the association had explained the practical problems in the way [the ministry was] thinking of TDS and had proposed a workable solution. The same has been honoured now and [the ministry has] released our intended guidelines as the standard operating procedure for collecting the info and money on TDS,” said Sathvik Vishwanath, the CEO and Co-Founder of crypto exchange Unocoin. “I would consider this to be a small win for the crypto community and we look forward for such encouragements from other departments as well.”
Edul Patel, the CEO and Co-Founder of crypto trading platform Mudrex, told ABP Live that “exchanges across India are already working towards implementing things keeping TDS in mind. With the new CBDT FAQ, there will not be many changes. But the government's clarification regarding the CBDT FAQ can make things clearer for both buyers and exchanges.”
Commenting on how the new TDS may affect crypto trading, Patel believes “it may impact a bit on the trading and buying activities.” He added, “But the new clarification from the Finance Ministry on CBDT guidelines would ease the work at their front as the exchanges would be doing it for them.”
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.