TDS on Virtual Digital Asset Section 194S-Edueasify

TDS on Virtual Digital Asset | Section 194S: In Finance Act 2022, A new section 194S TDS on Virtual Digital Asset, has been inserted in the Income Tax Act, 1961 and has been made applicable w.e.f. 01.07.2022.

The Government vides Finance Act 2022 had introduced a new section 194S TDS on Virtual Digital Asset which requires deduction of tax @ 1% on the consideration being transferred to a resident person for transfer of Virtual Digital Asset.

The liability to deduct tax is on the person responsible for paying that consideration and not on the buyer of Virtual Digital Asset (VDA). 

  • However, Tax Deduction is not required in the following case; The Consideration is payable by a specified person and the value or the aggregate value of such consideration does not exceed Rs. 50000 during the financial year.
  • The Consideration is payable by any person other than a specified person and the aggregate value of such consideration does not exceed Rs. 10000 during the financial year.

Liability to deduct TDS on Crypro Assets under Different Scenarios

  1.  Transfer of Virtual Digital Asset through on exchange & Virtual Digital Asset being transferred is owned by a person other than Exchange. In such a case, TDS on Virtual Digital Asset is required to be deducted by the exchange receiving the consideration.
  2. In the case where the credit /payment between the exchange and the seller is through a broker,  both the exchange and the broker shall be liable. However, if there is a written agreement between the broker and exchange the broker alone may deduct TDS.
  3. Transfer of Virtual Digital Asset through an exchange and Virtual Digital Asset being transferred is owned by the exchange. The primary responsibility is on the buyer.

However, in such case since the buyer may not be aware whether the Virtual Digital Asset is owned by the exchange or not. as an alternative the exchange mat enters into a written agreement with the buyer or his broker with regard to all such transactions and the exchange may thereon deduct TDS on Virtual Digital Asset.

Where the Consideration is in Kind or Partly in Cash & Kind

In such a situation, the person responsible for paying consideration needs to ensure that tax in respect of such consideration has been deposited before releasing such consideration.

To remove difficulty as an alternative tax may be deducted by the exchange. the situation may generally arise where one Virtual Digital Asset is exchanged for another Virtual Digital Asset.

in such a case where one Virtual Digital Asset is exchanged for another Virtual Digital Asset, the exchange would be required to convert the same with the government of the Virtual Digital Asset withheld is non-primary the same need to be converted into a primary Virtual Digital Asset (BTC, ETH, USDT, USDC) which can be easily converted into INR.

Under Section 194S, the amount of consideration for purpose of tax deduction will be exclusive of GST Component.

Section 194S TDS on Virtual Digital Asset will come into force from 1st July 2022. any amount of consideration paid or credited prior to 1st July 2022 will not be subjected to tax deduction under section 194S.

also, check TDS on Benefits or Perquisites provided in respect of Business or Profession | Section 194R

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