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Crypto TDS (tax) rules come into place: Four changes to note from today

To help you understand these provisions better, here we explain crypto TDS rules in four-pointers.

By: Tech Desk | Pune |
Updated: July 1, 2022 10:06:29 pm
In the annual budget this year the government said it would tax gains made through cryptocurrency investments at 30%. (File photo)

The rules regarding tax deducted at source (TDS) on virtual digital assets have come into effect starting July 1. This comes after the government levied a 30 per cent flat income tax on cryptocurrencies from April 1. During this time, the government also announced the imposition of a TDS of 1 per cent. However, traders and exchanges were under the confusion about whom the onus of deduction would lie.

On June 22, the Central Board of Direct Taxes (CBDT) issued detailed guidelines on crypto assets and clarified the various scenarios under which tax would be applicable. A TDS would be levied on the transfer of virtual digital assets effective July 1 if the value of transactions exceeds Rs 10,000 in a year. To help you understand these provisions better, here we explain crypto TDS rules in four-pointers.

Applicable from July 1

TDS provisions are applicable from  July 1, 2022. This means any trades executed before July 1 won’t lie under the onus of dedications. It should be noted that if you have placed orders before  July 1 2022, but the trade happens on or after the 1st of July 2022, the TDS provisions will still apply. For instance, say you bought Rs 10,000 worth of Bitcoin in June but processed the trade after June 30 then TDS would still be levied. As per the provisions, TDS would be deducted on each trade where a crypto asset is exchanged for INR or for another crypto asset.

Seller pays TDS

If you are buying cryptos using INR, then no tax (TDS) will be deducted from the buyer. However, the seller of the crypto asset will be liable to pay TDS. WazirX explains that if a crypto asset is bought by paying with another Crypto asset, ie, trading one crypto asset for another, then the TDS would be payable by both parties. But, what about P2P or peer-to-peer trades?

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In the case of P2P trades, 1 per cent tax (TDS) will be deducted before a sell order is placed. No tax (TDS) will be deducted from the P2P buyer. Peer-to-Peer trading allows buying and selling of cryptocurrencies without the need of any third party or intermediary. Although you technically do require a platform where buyers and sellers can connect, you don’t need to transact with the platform necessarily, all the transactions occur between the two parties — seller and buyer.

Notably, 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, then the tax (TDS) to be deducted for crypto-related transactions will be at 5 per cent, according to Section 206AB of the Income-Tax Act, 1961.

Crypto exchanges facilitating P2P orders will ensure that users see the applicable TDS on the order confirmation screen and the TDS deducted on the order details screen post order execution.

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TDS in crypto will be converted to INR

The TDS collected needs to be paid to the Income Tax Department in the form of INR. Any TDS collected in the form of crypto has to be converted to INR and for ease of conversion and to reduce price slippage, in crypto to crypto transactions, the TDS for both sides would be deducted.

Rajagopal Menon, Vice President at WazirX explains how this will work. “For instance, WazirX markets have 4 quote (primary) assets- INR, USDT, BTC, and WRX. For example, in the following markets: MATIC-BTC, ETH-BTC, and ADA-BTC, Bitcoin (BTC) is the quote Crypto asset, and hence the TDS of both the buyer and seller trading in these markets would be deducted in BTC.”

So if 1 BTC traded for Rs 100 (just an example). BTC seller receives Rs 99 (after 1 per cent TDS deduction). And BTC buyer receives 1 BTC (no TDS deducted). Meanwhile, in P2P markets when 1 BTC  is sold for 10 ETH. BTC seller receives 10 ETH by paying 1.01 BTC (after 1 per cent TDS addition) whereas BTC buyer receives 0.99 BTC (after 1 per cent TDS deduction).

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TDS calculated excluding GST

The TDS will be calculated on the ‘net’ consideration payable after excluding GST/charges levied by the Exchange. “TDS at 1 per cent will be levied on the “Sale value excluding any charges and GST”. In case of Sale Value being a crypto to crypto trade, TDS will be deducted at 1 per cent in respective coins on both legs of the transaction and converted into INR,” Punit Agarwal, CEO of KoinX told indianexpress.com.

Buyers who acquire crypto through P2P will have to deal with all 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 the sale value will be blocked as TDS thereby reducing the capital available for next trade,” he added.

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First published on: 01-07-2022 at 05:48:48 pm

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