Crypto tax: All you need to know about 1% TDS that will be charged from July 1

Cryptocurrency transactions will be subject to an extra 1% tax deducted at source (TDS) beginning July 1, following the 30% tax rate imposed by the government in the Union Budget 2022-23.  

ZebPay, a cryptocurrency exchange platform, notified its subscribers through email that “In compliance with the prescribed tax laws from the effective date, we will be implementing changes to our platform.”

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It went on to explain that from July 1, 2022, ZebPay will deduct this 1% TDS when executing trades and transferring crypto assets. The TDS will subsequently be paid to the government on the buyer’s behalf. This can be offset against tax liability while filing the income tax return.”

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Here is how TDS will affect the transactions, according to ZebPay.

If a trader places a sell order for 1 BTC for Rs 20,00,000, the following will happen:

Value of the order: Rs. 20,00,000

Transaction fees* (0.25% of 20,00,000) = Rs 5,000TDS applicable (1% of 19,95,000) = Rs 19,950

Final calculation (actual withdrawal amount) = Rs 20,00,000- (5,000+19,950) = 19,75,050

* Transaction fees may differ based on the tier.

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The Central Board of Direct Taxes (CBDT) has issued guidelines outlining who is liable for deducting TDS in various sorts of transactions.

In the event of peer-to-peer transactions, CBDT’s Circular No. 13 of 2022 requires the crypto buyer to deduct the TDS, according to financial express. If the trade takes place on or via the exchange, TDS may be deducted by the exchange.

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“In certain cases where the transaction takes place on exchange but the payment to the seller is made through the broker, in that case, both exchange and broker are required to deduct TDS, however, based on the written agreement, broker only may deduct TDS on the seller,” said Gopal Bohra, Partner, N.A. Shah Associates.

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He further stated that the person who deducted TDS when making payment to the seller of a virtual digital asset (VDA), whether buyer, exchange, or broker, will be required to deposit the tax within 30 days after the end of the month in which the tax was deducted.

“For example, tax deducted under section 194S in the month of July shall be deposited on or before 30th August,” Bohra said.

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The tax must be filed digitally using Form No. 26QE, a challan-cum-statement of tax deducted under Section 194S, as per financial express. The deductor’s TAN is not necessary for this purpose. But, if the deductor possesses TAN, he can submit Form 26Q.

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Furthermore, the deductor must issue the TDS certificate in Form 16E to the deductee within 15 days after the due date of providing the challan-cum-statement in Form No. 26QE after downloading it from the income-tax portal.

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According to experts, the 1% TDS regulation will not result in an increased tax duty for the seller because it will be offset against his usual yearly tax liability. If a buyer purchases crypto VDAs through an exchange, there may be no TDS compliance burden on the buyer.