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1% TDS on Crypto in India. Here’s Everything You Need to Know

TDS on Crypto: The one percent tax deducted at source (TDS) rule for cryptocurrency transactions, which went into effect on July 1, 2022, has resulted in a dramatic decline in trading volume on Indian exchanges.

Short-term traders, day traders, and anyone looking to invest in cryptocurrencies for a short period of time have been most affected by the 1% TDS taxation rule. Let’s understand the different aspects of this legislation.

What is TDS in General?

In this concept, a person (the deductor) who is obligated to make a specified payment to another person (deductee) must deduct tax at the source and send it to the central government.

The deductee whose income tax has been deducted at source is entitled to get credit for the amount deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

What is TDS for Virtual Digital Assets?

TDS, or Tax Deducted at Source for Virtual Digital Assets (VDA), was included in the Finance Bill of 2022 under a new section (194S in the Income-Tax Act, 1961).

It specifies a 1% TDS being levied on any compensation received for the transfer of Virtual Digital Assets.

To put it another way, when you sell a cryptocurrency, the exchange that facilitates the transaction must deduct and retain 1% of the transaction value as TDS, which is subsequently paid to the government.

This rule applies to transactions worth more than Rs. 10,000. However, these limits apply at the user level across all exchanges on which they trade.

TDS Deduction

As a buyer or seller on an exchange, you wouldn’t have to take any action regarding TDS. The crypto exchange will deduct the tax amount in accordance with the Central Board of Direct Taxes (CBDT) guidelines under Section 194S. The exchange will send you TDS statements at regular intervals.

In the case of TDS, it makes no difference whether you make a profit or a loss on your trade. TDS will be levied on the total amount sold (the “final sale amount”), regardless of whether you incur profit or loss.

How Do You Calculate TDS?

Let’s look at an example. Assume you sold Rs. 1,000 in ETH today. In this case, the 1% TDS would be deducted from Rs. 1000 (final sale amount, regardless of whether you are selling ETH for a profit or a loss), which comes to around Rs.10. For the sake of simplicity, this example excludes exchange fees.

What If Your Are in 30% Tax Slab?

Even if you pay 30% income tax on your profits or gains, TDS will apply. Both are different types of tax obligations that must be met. However, if the income tax payable is less than the TDS deducted, the TDS can be claimed as a refund when filing the ITR. Consult your CA or financial advisor for more details on this matter.

Also Read: Top DeFi Tokens To Buy In December 2022 That Will Make You Rich In Long Run

   

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