Sandeep Sehgal, Tax expert, and Partner at AKM Global breaks down the intricacies of TDS on crypto transfers for Business Today readers.
TDS on crypto transfers would be applicable from July 1. Sandeep Sehgal, Tax expert, and Partner at AKM Global breaks down the intricacies of TDS on crypto transfers for Business Today readers.
Question 1: Could you break down for our viewers how TDS would be deductwhen investors buy or sell cryptocurrencies via a KYC-compliant centralized exchange?
Ordinarily, such deductions shall be taken care of by the exchange. The exchange will deduct tax before transferring the amount to the seller of crypto. Hence, the people buying and selling may need not bother about the deductions in such cases. But in a few cases, where the exchange itself is the owner and seller of the cryptocurrency, the buyer may need to deduct tax for the exchange but even in those cases, the buyer may agree in writing with the exchange that the exchange will pay the tax itself and the buyer need not deduct the tax in this case as well. In short, generally, exchanges would take care of the compliances if the transaction is carried out through them.
Question 2: What happens in the case of peer-to-peer crypto transfer? Is the TDS liability on the sender or receiver of cryptos?
In the case of a peer-to-peer (i.e. direct sender to receiver) transaction, the buyer of crypto who is paying consideration is required to deduct TDS from the payment to be made to the seller. The buyer will need to pay the tax and report by filing a form called Form No. 26QE within 30 days. The buyer will need to provide a form called Form 16E which is basically the evidence of deduction of tax. The form would be generated online from the TRACES portal of the Income-tax department. It is worth noting that the buyer need not apply TAN number and this payment and reporting can be done through the PAN only. In short, the receiver will deduct and pay the tax. Besides, 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.
Question 3: How is the aggregate consideration in a transaction computed in the case of a crypto transfer as per the latest CBDT guidelines?
Ordinarily, the TDS would be deducted from the price charged by the seller. However, if during the process any charges or GST is also collected then those shall not form part of the consideration and shall not be subject to TDS. Hence, TDS shall be charged on net consideration. For example, if you have sold some VDAs for Rs. 10,000 through the exchange and the exchange charges Rs. 100 for the transaction, the TDS would be charged on Rs. 9,900 only.
Question 4. Is there a difference if the transfer is VDA to INR or VDA to VDA?
Yes, there would be a difference. In the case of VDA-to-VDA transfer, both the parties would be treated as buyer and seller, hence both the parties need to deduct and pay taxes for each other. After the payment of tax, they need to share the evidence of the payment of tax with each other, then only the transfer of VDA can take place. But there is as well, there is an alternative available that if both the parties have an agreement with the exchange, the exchange can deduct tax from both of them and file the return accordingly. The exchange will deduct 1 per cent of the VDAs of both the parties, will convert them into cash, and then pay the tax.
Question 5: What if a broker is involved in a cryptocurrency transfer, would there be a difference in the way the CBDT would treat it?
If the transaction is being carried out for cash consideration, both the broker and exchange are required to deduct the tax. But, there too if the exchange and broker can agree in writing, in that case, only the broker will pay the tax. But if the transaction is in kind, ordinarily both the parties would deduct the tax as mentioned in reply to the previous question but there too, the onus to deduct tax can be shifted to the exchange or broker through the written agreements.
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