TDS ON Crypto Trading

In order to keep track of the persons engaged in crypto trading, Budget 2022 w.e.f 01.07.2022 vide section 194S made it mandatory for any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall deduct one percent of whole consideration as TDS.

Section 194S: Any person responsible for paying to any resident any sum by way of consideration for transfer of crypto, shall deduct an amount equal to one percent of such sum as income-tax thereon:

No tax shall be deducted in a case, where:

1. The consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or
2. The consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.

Specified Person: 

1. Being an individual or a HUF, who is engaged in business having turnover upto one crore rupees or a profession having gross receipts upto fifty lakh rupees during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
2. Being an individual or a Hindu undivided family, not having any income under the head "Profits and gains of business or profession".

Q. Is TDS applicable when Cryptocurrency is exchanged against consideration other than cash?

Yes, there could be a situation where the consideration is in kind or partly in kind and partly in cash. If the cash part is not sufficient to meet the TDS liability, the person responsible for paying such consideration is required to ensure that the tax required to be deducted has been paid in respect of such consideration, before releasing the consideration.

Q. Is TDS applicable when one Cryptocurrency is exchanged against another cryptocurrency?

Yes, TDS will be applicable even in the case of the exchange of cryptocurrency. Here both the parties will be sellers as well as buyers. Thus both need to pay taxes with respect to the transfer of cryptocurrency and show the evidence to others so that cryptocurrency can then be exchanged.