TDS & Income Tax on Crypto & Virtual Assets

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Cryptocurrencies as a digital asset are becoming popular every day in India. Till now, the government has not made cryptocurrencies legal. However, various tax rules and regulations have been made. This article will guide you all the latest updates about TDS and Income Tax on Crypto and Virtual Assets.

What is Cryptocurrency?

Cryptocurrency is the latest kind of currency that exists digitally. Cryptocurrency works on the basis of cryptography to secure the transactions. However, cryptocurrencies don’t have any central issuing agency, and therefore, they are regarded as a “Digital Asset” in India.

Furthermore, the Indian government also announced several updates and regulations for Cryptocurrency in Union Budget 2022 Highlights. One of the major announcements was the 1% TDS levy on the transfer of digital assets.

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What is TDS?

Tax Deducted at Source is referred to as TDS. To directly collect taxes from the source of income, TDS was created. Deducting tax at source (TDS) and depositing it to the government through TDS Return Filing is required of anyone (the deductor) who owes another person (the deductee) a certain sum of money.

Trading Platforms for Cryptocurrency in India

The number of cryptocurrency exchanges in India has significantly increased as a result of cryptocurrencies’ growing popularity. Cryptocurrency exchanges essentially serve as a marketplace for buying, selling, and exchanging digital currencies for national currencies like the Indian rupee (INR) or the US dollar (USD).

In India, you can trade on cryptocurrency platforms like WazirX, Coinswitch Kuber etc. If you trade in cryptocurrency, you will be regarded as a “specified person” and be liable to pay TDS if your transaction satisfies the eligibility criteria.

As per the announcement of Cryptocurrency Exchanges to pay 1% TDS from Next Month, TDS & Income Tax on Crypto & Virtual Assets will now be in effect from July 1st, 2022. The cryptocurrency exchanges will be liable to deduct TDS if:

  • The “specified person’s” (buyer’s) total payment during the financial year exceeds Rs 50,000, whether paid in full or in instalments;
  • Any other person or buyer (other than the aforementioned “specified person”) has paid more than Rs 10,000 during the financial year (either individually or collectively).

What is a specified person?

Here, a specified person means:

  • An individual or Hindu Undivided Family (HUF) without any income under the category of “profit and gains from business and profession”
  • An individual or HUF with income under the category of “profit and gains from business and profession” whose total sales, gross receipts, or turnover from business does not surpass Rs. 1 crore, or Rs. 50 lakh in the case of a profession.

Important Note: This criterion will be seen in the fiscal year that comes before the fiscal year in which the virtual digital asset is transferred.

TDS deduction on Crypto Transactions-Section 194S

After the government’s 30% tax rate was implemented in the Union Budget 2022–2023, cryptocurrency sale transactions are scheduled to be subject to an extra 1% tax deducted at source (TDS) beginning on July 1.

In the Union Budget 2022–2023, Finance Minister Nirmala Sitharaman announced a 1% TDS deduction. However, confusion over the rates occurred after it was noted on the income tax department website that the rate on virtual digital assets had been reduced from the 1% TDS on such assets to 0.1%. To set the record straight, the IT department issued a notification on June 22 that TDS on virtual digital assets will stay at 1%, as stated in the Union Budget.

Furthermore, the Income Tax Department issued another new notification on June 28 in relation to the liability to deduct TDS and the complete procedure of deducting TDS and income tax on crypto and virtual assets.

TDS & Income Tax on Crypto & Virtual Assets

The new rule mandates that the buyer of virtual digital assets (VDAs) deduct 1% of the amount paid to the seller (an Indian resident) as income tax deducted at source (TDS). The tax must be deducted at the moment of crediting or payment to the resident individual, whichever occurs first. If the amount paid is greater than the predetermined threshold, the tax will need to be deducted.

When transferring VDA, the tax will be deducted at a rate of 20% if the deductee (buyer’s) PAN is not immediately available. Additionally, if the payer is not one of the aforementioned people(specified person), TDS will be withheld at a higher rate of 5% (as opposed to the usual rate of 1%) if the individual has not done his or her income tax return filing.

CBDT notifies challan-cum-statement Form 26QE for payment of tax deducted on VDAs.

A challan-cum-statement of tax deducted under section 194S, Form No. 26QE, must be used to deposit the tax online. The deductor’s TAN is not necessary for this purpose. On the other hand, if the deductor possesses TAN Registration, he can file Form 26Q.

Additionally, after downloading the form from the income-tax portal, the deductor must provide the deductee with the TDS certificate on Form 16E within 15 days of the due date for submitting the challan-cum-statement in Form 26QE.

Source: Income Tax Department Notification 


The 1 percent TDS will not result in an extra tax duty for the crypto seller because it will be subtracted from his normal annual tax obligation. But this will undoubtedly aid the authorities in tracking down cryptocurrency transactions and any tax evasion.

Cryptocurrency Exchanges to pay 1% TDS from Next Month

Moreover, If you want any other guidance relating to TDS Return Filing or  please feel free to talk to our business advisors at 8881-069-069.

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