Tax deduction for crypto, digital assets; Central Board of Direct Taxes issues notification

According to new guidelines, to avoid deduction of tax of digital assests at multiple stages, tax may be deducted only by the exchange which is crediting or making payment to the seller.
Representational Image
Representational Image

BENGALURU: The new tax guidelines on the transfer of virtual digital assets (VDAs) like cryptocurrency have put the onus of deducting one per cent tax largely on exchanges. The Central Board of Direct Taxes (CBDT) on Wednesday notified detailed disclosure requirements for virtual digital assets (VDA) such as cryptos for TDS deductions, which will come into effect from July 1.

Accordingly, a new section 194S has been inserted in the Income Tax Act. According to new guidelines, if the transfer of VDA takes place through an exchange or broker, in order to avoid deduction of tax at multiple stages, tax may be deducted only by the exchange which is crediting/making payment to the seller. Where the transaction between Exchange and the seller is through a broker (who is not the seller), the onus to deduct tax is on both the Exchange and the broker. However, the onus will be on the broker, where there exists a written agreement between Exchange and broker that the broker should deduct tax.

If the VDA is owned by the exchange, though the primary responsibility is of the buyer or his broker, the exchange may enter into a written agreement with the buyer or his broker that in regard to all such transactions the exchange would be paying the tax.

The new rules mandate the exchange to furnish a quarterly statement for all such transactions of the quarter on or before the due date and furnish its income tax return including all such transactions in the return. According to the new rules, if the consideration is in kind or in exchange for another VDA or partly in kind and cash, the person responsible for paying such consideration is required to ensure that the tax required to be deducted has been paid in respect of such consideration.

The new TDS provision says the non-primary VDAs like Deso/Monero are converted to an equivalent of primary VDAs like BT, and ETH (Bitcoin, Ethereum), which have a ready INR market. Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm said that the CBDT has covered the practical scenarios to facilitate smooth implementation of the withholding on consideration for the transfer of VDAs.

“The exchanges have to further disclose these transactions in their tax return and maintain a proper trail. However, this would be helpful to the buyers and sellers both since they can enter into contracts with the exchange for passing the responsibility to deduct tax on their behalf in VDA to VDA transfers or otherwise as well,” Maheshwari said.

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The New Indian Express