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On June 22, 2022, the Central Board of Direct Taxes (CBDT) published a circular describing the tax deduction process for virtual digital assets (VDA) transfers and cryptocurrencies. Beginning on July 1, 2022, new TDS regulations regarding VDA and crypto will be in place.

What Is Stated In The TDS On VDA And Crypto Law?

The buyer of a virtual digital asset (VDA) must deduct 1% of the amount paid to the seller (resident Indian) as income tax deducted at the source under the new rule (TDS). Depending on which occurs first, the tax must be subtracted either when the money is credited to the account or when it is paid to the resident individual. According to CBDT, the tax will only be deducted if the amount paid exceeds the allowed limit.

Taxmann.com DGM and Chartered Accountant Naveen Wadhwa say, “Any person (resident, non-resident, or Exchange) paying a resident individual at the time of buying cryptocurrency, VDA, or NFT (as announced by the government) will be required to deduct TDS on the amount paid at a rate of 1% starting on July 1, 2022. Section 194S of the Income-tax Act of 1961 will apply to the TDS on VDA.”

The tax at the time of transfer of VDA will be deducted at 20% if the deductee’s (buyer’s) PAN is unavailable. Additionally, suppose the payer is not one of the specified people. In that case, TDS will be deducted at a higher rate of 5% (as opposed to the usual rate of 1%) if the individual has not submitted his or her income tax return.

When Will TDS On VDA, Crypto Applicable?

According to the CBDT circular, the TDS on the transfer of VDA and cryptocurrency will be applied if:

a) If the “specified person” (buyer) paid more than Rs 50,000 in one or more payments throughout the financial year; or

b) During the financial year, any other person or the buyer (other than those mentioned above “specified person” as described above) paid more than Rs 10,000.

Who Is A ‘Specified Person’

a) A person or Hindu Undivided Family (HUF) without any income falling under the category of “profit and gains from business and profession,” and

b) A person or HUF whose total sales, gross revenues, or turnover from business does not exceed Rs 1 crore, or in the case of a profession, does not exceed Rs 50 lakh, and who receives income under the heading “profit and gains from business and profession.” This threshold point can be seen in the fiscal year that comes before the fiscal year in which VDA is transferred.

Calculating The Tax On Private Crypto Gains

Earnings from Bitcoin = Transfer Value – Acquisition Cost

With no cess/surcharge: 

Let’s imagine that a cryptocurrency investor makes a 2 BTC (Rs.1 lakh each) investment. Imagine that one bitcoin was sold for 30,000 (70000 loss) and other sold in a profit of 50,000. (i.e sold at 1.5 lakh). The tax breakdown would then be as follows:

= 30 percent tax on the Rs 50,000 profit + 0 tax on the Rs 70,000 loss

= Rs 15,000 tax despite an overall investment loss of Rs 20,000 in absolute terms.

With surcharges: 

Depending on the investor’s objective and taxable income, different surcharge rates may be imposed. In addition to a cess that is applicable at 4% of the tax and surcharge amount, this might be 10%, 15%, 25%, or 37% of the total income. The gains on the transfer of Crypto assets may therefore be liable to effective tax at various rates, including 31.2 percent, 34.32 percent, 35.88 percent, and 42.744 percent.

The total tax deductible in the same example is 10% higher.

= 0% tax on the Rs. 70,000 loss + 30% tax on the Rs. 50,000 profit+ 10% surcharge on the Rs. 50,000 profit + 4% on the tax and surcharge amount.

= 20,000 + 800 = Rs 20,800 tax

Transactions In Which TDS Is Not Applicable

On Buy, Limit Buy, CIP, and Earn orders, there will be no TDS.

Systematic Crypto Investment Plan, or SCIP, is a service provided by BuyUcoin. It is also a buy order in another way.

What Is The TDS Certificate That Will Be Issued?

A new TDS certificate, Form 16E, has been launched, according to the CBDT’s announcement. Within 15 days of the due date for providing the challan-cum-statement in Form 26QE, the buyer (who has deducted tax at the time of payment) must issue Form 16E to the seller of the VDA.

The tax deducted at the time of selling a VDA must be deposited within 30 days of the end of the month that the tax was removed, according to the notification provided. Challan-cum-statement in Form No. 26QE will be used to deposit the tax.

Let’s say that on July 20, 2022, VDA was sold via an Exchange. According to a signed agreement, the Exchange will be in charge of withholding tax from payments made to sellers. By August 30, 2022, the Exchange must complete a tax deposit with the government, and by September 14, 2022, it must provide Form 16E to the seller.

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