TDS on Cryptocurrency unravelled

CryptoSmartlife Research Team
July 09 2022, 2 minutes read
On February 1st, in the Union Budget, the government decided to impose a 30% tax on income from cryptocurrencies from the new financial year and a 1% TDS on all crypto transactions starting July 1st, 2022. The move in a way quelled the uncertainty surrounding the fate of cryptocurrencies in India, and suggested that it may not be banned as feared earlier. Section 194S was inserted in the Income Tax Act through Finance Act 2022. It mandates deduction of 1% TDS on transfer of crypto and other virtual digital assets in India. 

What is the 1% TDS and where will it be applicable?

As per revised Income Tax regulations, the 1% TDS will be applicable from July 01, 2022, on “Payment on transfer of Virtual Digital Asset”. The TDS will be calculated on the ‘net’ consideration payable after excluding GST/charges levied by the crypto exchanges in India. Following are the applicability of the TDS on CryptoSmartlife.

Simple Coin Buy - No TDS

Simple Coin Sell - 1% TDS

Smart Basket Buy - No TDS

Smart Basket Sell - 1% TDS

According to the rules, it is mandatory for the buyer of a virtual digital asset to deduct 1 percent of the amount paid to the seller (Indian resident).

How is 1% TDS different from 30% tax on cryptocurrencies?

After the 30 per cent taxation on the gains arising from the crypto assets, the government  implemented the 1 per cent tax deducted at source (TDS) on the transfer or consideration of every trade. The difference between them lies that the 30% taxation on cryptocurrency in India is actually the taxation on the gains from crypto whereas the 1% TDS is applicable on all sell orders. The government believes that the new TDS mechanism is used to trace transactions and prevent tax evasion.

Who is liable to deduct 1% TDS?

If the crypto trading or crypto investing takes place on or through the crypto exchanges in India, the exchange may deduct TDS. Here, CryptoSmartlife would be liable to deduct TDS for the users and deposit it with the Indian government against the PAN of each user.

Where can I see my TDS deduction history?

On the cryptoSmartlife web app, you can find your TDS deductions in the 'Transaction History' menu at the top right. CryptoSmartlife will also issue the TDS certificate (16A) within 45 days of the closure of the financial quarter. The financial quarters close in [1st Quarter - June | 2nd Quarter - September | 3rd Quarter - December | 4th Quarter - March].

Since TDS came into effect form 1st July, 2022, it’ll be too early to deduce any ramifications of it on the Cryptocurrency Investing in India. CryptoSmartlife aims that the tax deductions are transparent to keep users informed of taxation throughout the crypto buying experience.

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