After the 30 per cent tax rate introduced by the Union Budget 2022-23,Cryptocurrencies sale transactions are expected to attract additional tax deducted at source TDS of 1 per cent from July 1 onwards.
The deduction for TDS will apply to all virtual asset VDA transfers, including cryptocurrencies and non-fungible NFTs worth over 10,000. The Income Tax Act has introduced a new clause 47 A that defines a information, code, number or token as any information, except Indian or any other foreign currency that is generated through criptographic or other means. Non- Fungible or any other similar token are included in this definition.
Finance Minister Nirmala Sitharaman announced a 1 percent TDS deduction in the Union Budget 2022-23, which was announced by Finance Minister Nirmala Sitharaman. The income tax department website stated that the rate for virtual assets had been brought down to 0.1 per cent from the 1 per cent TDS on such assets, but there was ambiguity over the rates. The IT department reiterated that the TDS on virtual digital assets will remain at 1 per cent, as announced in the Union Budget.
The Central Board of Direct Taxes CBDT clarified that the onus of withholding the TDS lies with the person making the payment to the seller, whether a buyer, an exchange or a broker. The TDS needs to be deducted from the selling price and the rest can be paid or transferred to the seller after deducting the TDS amount.
In instances where the transaction of VDAs is directly carried out without the involvement or exchange of a broker, the buyer and seller will have to deduct the tax under Section 194 S of the IT Act.
The exchange crediting or making payment to the seller is crediting or making payment when the transfer of VDA is made through a broker or exchange. In cases that involve a broker who is not the seller, the onus of tax deduction will be on the broker and the exchange, provided there is no prior written agreement between the parties.
When VDAs are sold, the exchange can enter into a written agreement with the buyer or his broker that the exchange would pay the tax on all such transactions.
After the seller shows proof of payment of the tax, the buyer will be required to release the consideration in kind for the transfer of VDA in exchange for kind. For VDA transactions, both buyer and seller have to pay tax with respect to the transfer of VDA and show the evidence to each other so that VDAs can be exchanged. By filling up Form 26 Q, the transaction will have to be reported in the TDS statement along with the challan number.