The introduction of the 30% tax on your crypto holdings in India was soon followed by a 1% TDS which ultimately settled the current landscape of crypto in the country, at least for now.
The TDS on cryptocurrency in India could very well be a very dynamic approach as it might change over time. However, for now, we can begin to understand the implications of this 1% TDS and how it affects you and your crypto trades.
What is considered a TDS on cryptocurrency?
The Tax Deducted at Source (or TDS) is the income tax that’s reduced from the money paid while making certain payments.
In the deduction of TDS, a person (the deductor) that owes a specific amount to another person or party (deductee) needs to deduct the tax at the source and remit it to the central government.
This TDS amount on crypto in India is deducted at 1%.
From July 01, 2022, as per the newly inserted Section 194S of the IT Act, TDS at the 1% rate will be deducted by the buyer when making payment to the seller for the transfer of Crypto/NFT. In case the transaction is made on an Indian exchange, then the Indian exchange will deduct the TDS and pay the balance amount to the seller. In this case, no action needs to be taken by the buyer.
How to calculate your TDS on cryptocurrency?
The TDS on cryptocurrency usually occurs in two scenarios:
In the case of P2P transactions, the buyer will be responsible for a deduction of TDS and filing form 26QE or 26Q, as applicable.
In the case of trading on Indian exchanges, no TDS compliance is required to be done by the buyer.
In the case of trading on International exchanges or Decentralised exchanges, TDS compliance is required to be done by the Buyer.
Please note that in crypto-to-crypto trades, TDS will be applied to both buyer and seller at 1%.
TDS isn’t levied on amounts that are less than ₹50,000 or ₹10,000, as applicable in a fiscal year. Payments or investments above this amount qualify for 1% TDS.
Applicable Tax Clause
After the Central Board of Direct Taxes (CBDT) outlined the tax deductions of VDAs, the TDS regulations went into effect on July 01, 2022.
The rules of TDS apply to the transfer of VDA if:
- The seller is an Indian resident
- The buyers’ total payment during the financial year exceeds ₹50,000, or ₹10,000 as applicable.
- TDS has to be filed in form 26Q or 26QE as applicable
The 1% TDS needs to be subtracted depending on what occurs first – whether when the funds are credited to an account or when they are paid to the individual.
Real-life scenario(s) of tax computation on TDS on cryptocurrency
Let’s say Anil sells 1 BTC for 19,000 USDT to Sunil.
This trade occurred on an Indian exchange.
In this transaction, Anil is selling 1 Bitcoin, hence the exchange will deduct 0.01 Bitcoin as TDS and deposit it against Anil’s PAN.
Also, since Sunil sells 19,000 USDT, the exchange will deduct 190 USDT as TDS and deposit it against Sunil’s PAN.
Some ambiguities about tax on TDS on cryptocurrency in India
TDS is applicable when an individual or entity makes a payment to an Indian resident individual or entity for the purchase or sale of cryptocurrency.
In India, TDS on cryptocurrency is applicable if the transaction value exceeds ₹50,000 (or ₹10,000 as applicable) in a financial year.
The TDS rate for cryptocurrency transactions is 1%, which means that 1% of the transaction value will be deducted as TDS and the remaining balance will be paid to the recipient. The person deducting TDS is required to provide a certificate of TDS deduction to the recipient.
Tax doesn’t always have to be difficult, however. We at KoinX are built to simplify your tax compliances for you. You can skip all the technicalities of crypto taxes yourself and let KoinX take care of it.