1% TDS on crypto transactions from this month

The TDS has become applicable to the trading of crypto assets and NFTs from July 1

By Shashank Bhardwaj

Image: Shutterstock

The February 2022 Budget announcement concerning the levying of 1 percent TDS (Tax deducted at source) has become applicable on the trading and transfer of crypto assets, including NFTs, since July 1. The impact of the same is being felt in the declining trading volumes across exchanges.

Despite its skepticism of crypto assets, the Reserve Bank of India gave recognition to crypto assets in the 2022 Budget via a tax regime built specifically around cryptos. Crypto assets now fall under the ‘specified intangible assets’ category under ‘other sources of income’.

The Finance Bill of 2022 stated that virtual digital assets (VDAs) would be taxed if:

1) VDAs are given as gifts

2) If payment is received in the form of digital assets

3) and in the cases of staking, lending, airdrops, or yields.

Besides the 30 percent tax on gains from crypto investments, the government imposed 1 percent TDS on the transfer of crypto assets from one wallet address to the other, taking effect from July 1st 2022 for transactions involving a crypto asset with a fair value of more than Rs 50,000 or if the total gains are more than Rs 10,000 in a financial year. TDS will be subtracted from the crypto asset transaction value.

A Central Board of Direct Taxes (CBDT) circular has issued guidelines on the applicability of TDS. While most of the crypto asset traders will fall under the 1 percent category a minor portion of traders will have to pay 5 per cent TDS. The reason is, according to the Finance Bill of 2021 under 206AA and 206AB, a person is charged with a higher tax rate at source if they haven't filed an income tax return, that is, they do not have a PAN (Permanent Account Number). Also, the losses incurred while selling a crypto asset cannot be offset against the gains incurred during the same year.

The CBDT circular mentioned specific exemptions for an individual or HUF (Hindu Undivided Family) having no income under the ‘profit and gains from business and profession’ head or if the net profit from their profession or business did not exceed Rs 50,000 and 1 lakh respectively. For these ‘specified persons,’ the TDS limit is Rs 50,000 and for others, it is Rs 10,000.

According to CBDT on June 22, the crypto asset exchanges, buyers, and brokers will be required to pay TDS. It has to be deposited within 30 days from the month ending in which it was deducted.

The new amendment in the Finance Bill has had a significant effect on the trading volume of the crypto assets in the Indian crypto market. There has been at least a 70 percent decline in the volumes of spot trading on crypto-asset exchanges like CoinDCX, Zebpay, and WazirX on July 3 compared to June 30.

Trading volume on CoinDCX went down by almost 70 percent, 82 percent on WazirX and 76 percent on Zebpay. The crypto asset exchanges said it might be a little early to comprehend the actual impacts of TDS on the trading volumes as they are lower on the weekends.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash

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