EXPLAINED: How does Crypto TDS work?

If you have crypto at your disposal and you are thinking to sell it off then from July 1 onwards you have to pay 1 per cent Tax Deducted at Source (TDS) of the transaction value to the income tax government.

Now, who will be liable to deduct this TDS depends on your mode and medium of transaction.

Consider this: If you are buying and selling through an exchange then no TDS will be deducted from the buyer on buying crypto using INR while the seller of the crypto will be liable to pay TDS.  The crypto exchange will deduct this amount and deposit it with Income Tax Department. The seller would be able to offset this 1 per cent TDS from her or his total tax liability when he files for tax returns. A TDS certificate will also be issued in due course. However, in a peer-to-peer (direct buyer to seller) transaction, the buyer is required to deduct tax under section 194S of the Income Tax Act.

The next important point to note is how you are selling -whether it is in INR or another crypto. If it is in INR the crypto exchange will deduct it from the seller. But if the transaction is done in crypto-crypto pairs then 1 per cent TDS will be deducted from both the parties in respective coins and then converted to INR.  For example sale of 1 Bitcoin for 10 ETH will incur a deduction of 0.01 BTC and 0.1 ETH, being 1 per cent of sale value, as TDS. The crypto that is deducted as TDS will be liquidated to INR at the end of the day and this INR realised amount will be paid as TDS to the government.

A newsletter from WazirX states, “In spot as well as P2P orders, users can see the applicable TDS on the order confirmation screen and the TDS deducted on the order details screen post order execution. If TDS gets deducted in crypto, users will be able to see the INR value of this TDS in the trading report after 48 hours.”

The tax would be deducted only if the consideration exceeds Rs 10,000 for the financial year. But in the case of individuals/HUFs who are not into business or profession or are not subject to audit under the income tax, this limit would be Rs 50,000. Moreover, TDS shall be charged on net consideration, which is sale value after reducing charges and GST.

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