What is TDS in Crypto ? A Quick Overview

Written by Sushanth Kumar Reddy Kura | Published a month ago | 7 min read

   


Quick overview on TDS

TDS (Tax Deduction at Source) is the amount that is deducted when a company/person makes a specified payment like Salary, Interest, Professional fees, etc to a person. The tax is deducted by the company/person who makes the payment i.e. tax is deducted at the source itself. TDS basically helps in reducing tax evasion because the tax is deducted directly while making payments.


Let's understand this with an example :

Understandinng TDS


As seen in the above image when Alex makes a salary transaction to Bob he deducts 10% TDS before making the payment. This deducted amount (1000 Rupees in this case) will be directly deposited to the Income Tax Department of India by Alex.

Note: Different TDS percentages will apply for different situations. 10% TDS in our example is just an assumption.


TDS in Crypto

As we all know, a new section called 194S has been introduced under the 1961 Income-Tax Act in the Finance Bill of 2022 which states that 1% TDS will be applicable with effect from July 01. 2022 on “Payment on transfer of Virtual Digital Asset''. In short, when you buy any Crypto, the exchanges (WazirX, Coindcx, etc) will deduct 1% of the transacted value as TDS. Almost all popular Indian exchanges will do this automatically, and you as a buyer or seller will not have to do anything.


Note: All the TDS provisions are applicable from 1 July 2022. These provisions will not affect any trades executed before 1 July 2022. If you have placed orders before 1 July 2022, but the trade happens on or after 1 July 2022, the TDS provisions will still apply.

Now let's understand the new TDS provisions in a detailed and straightforward way with the help of examples:


  • TDS will only be deducted from the seller of the crypto. No TDS will be deducted from the buyer who is using INR to buy Crypto. But when crypto is being traded for another crypto TDS will be applicable to both buyer and seller
    • For example:
    • If 1 ETH is traded for 1,00,000 INR. ETH buyer will receive 1 ETH (TDS will not be applicable) but ETH seller will receive 99000 (1% TDS which is 1000 rupees in this case will be deducted).
    • If 1 ETH is traded for 0.1 BTC. ETH seller will receive 0.1 BTC by paying 1.01 ETH ( after 1% TDS addition). ETH buyer will receive 0.99 (after a 1% TDS deduction).
  • According to section 206AB of the 1961 Income-Tax Act, if the user has not filed the income tax return in the past 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years, then the TDS is to be deducted (for Crypto-related transactions) will be at 5%.
  • TDS needs to be paid in the form of INR to the Income Tax Department. So TDS that has been collected by exchanges in the form of crypto will be converted into the form of INR.
  • 1% TDS will also be applicable to P2P transactions. Same as normal trades, TDS will be charged to the USDT seller and No TDS will be applicable to the USDT buyer.
    • For example:
    • When the seller places an order for 10 USDT. First, 1% TDS will be deducted from the order amount (which will be 0.1 USDT in this case) and then a sell order of 9.99 USDT will be placed. The buyer will pay INR equivalent for this 9.99 USDT and he will receive 9.99 USDT (No TDS will be applicable for the buyer).
    • If the entire 9.99 USDT is not sold, 1% will be deducted from the amount that has been sold and the remaining amount from that 1% locked USDT will be released back to the seller by the exchange on order cancellation.
  • TDS deducted on a particular transaction will be available to view on the orders details page after the execution of the trade.
  • The TDS will be calculated after excluding the GST/Charges of the exchanges from the taxable amount.


Quick Summary

  • INR-to-Crypto Buy Orders - No TDS applicable
  • INR-to-Crypto Buy Orders (If ITR is not filed for the last 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years) - No TDS applicable

  • Crypto-to-INR Sell Orders - 1% TDS applicable on total order value

  • Crypto-to-INR Sell Orders (If ITR is not filed for the last 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years)  - 5% TDS applicable on total order value.

  • Crypto-to-Crypto Buy Orders - 1% TDS applicable on total order value

  • Crypto-to-Crypto Buy Orders (If ITR is not filed for the last 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years)  - 5% TDS applicable on total order value.

  • Crypto-to-Crypto Sell Orders - 1% TDS applicable on total order value

  • Crypto-to-Crypto Sell Orders (If ITR is not filed for the last 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years)  - 5% TDS applicable on total order value.

  • P2P Buy Orders - No TDS applicable

  • P2P Buy Orders (If ITR is not filed for the last 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years) - No TDS applicable

  • P2P Sell Orders - 1% TDS applicable on total order value

  • P2P Sell Orders (If ITR is not filed for the last 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years)  - 5% TDS applicable on total order value.


If you found this blog helpful, share it with your friends and colleagues! Thanks for reading!


Powered by EPNS

Related blogs