The Central Board of Direct Taxes has released regulations that take effect on July 1, 2022, to implement a 1% TDS on virtual digital assets pursuant to section 194S of the Income Tax Act, 1961. The criteria for resolving issues under subsection (6) of section 194s of the Income Tax Act of 1961 are outlined in the circular that was released on Wednesday.
According to the new clause, whoever is in charge of giving any resident money as payment for the transfer of a VDA must deduct 1% of that money as income tax. Must deduct taxes either at the moment the resident's account is credited with the money or at the time the money is paid, whichever comes first.
The TDS on Virtual Digital Assets' Primary Goals
The main goals of TDS return and guidelines for TDS on Virtual Digital Assets are as follows:
Under the heading "profit & gains of business or profession," an individual or Hindu undivided family (HUF) has no income.
A person or Hindu undivided family (HUF) whose total sales, turnover, or gross revenues from the business they are carrying on do not exceed fifty lakh rupees is considered to have income under the heading "profits & gains of business or profession." This strategy can be observed in the fiscal year that comes right before the fiscal year in which the VDA is transferred.
In the following scenarios, there is no requirement to make TDS return filing on virtual digital assets:
The consideration is payable by a person other than a selected person, and the value or aggregate value of that consideration does not exceed 10,000 rupees during the financial year.
The consideration is payable by a person described above, and the value or whole value of that consideration does not exceed 50,000 rupees during the financial year.
Which Situations Call for TDS on Virtual Digital Assets?
According to Section 194S of the Act, tax withholding is required from any payment made to a resident as payment for TDS return filing on virtual digital assets. As a result, section 194S of the Act requires the buyer (person paying the consideration) in a peer-to-peer (direct buyer to seller) transaction to deduct tax. However, if the transaction is being carried out on or via an Exchange, it may be necessary to deduct taxes at various points under section 194S of the Act. Therefore guidelines for TDS, the following clarifications are made in order to remove any obstacles to transactions occurring on or through an Exchange:
Virtual Digital Assets(VDA)
The buyer would be crediting or making payment to the Exchange in the event that the convey of VDA occurs on or along an Exchange, and the VDA being transferred is owned by someone other than the Exchange (directly or by broker).
The owner of the VDA being transferred must then be credited or paid, either directly or through a broker, by the exchange. Given the number of parties involved, it is made clear that:
Deduct taxes under Section 194S
May only deduct taxes under Section 194S of the Act when the Exchange credits or pays the seller (owner of the VDA being transferred). The broker is the seller when the broker owns the VDA. Therefore, under section 194S of the Act, the amount of consideration that the exchange credits to the broker are also deductible from income.
Payment Through A Broker
When the exchange and the seller make a payment through a broker (the broker is not the seller), both(exchange and broker)are responsible for withholding tax as required by section 194S of the Income Tax Act. Anyhow, the broker alone may deduct the tax under section 194S of the Income Tax Act if there is a contract between the exchange and the broker that the broker should be deducting tax on such credit or payment. For all such quarter transactions, the exchange would need to update a quarterly statement (in Form No. 26QF) by the deadline outlined in the Income-tax Rules of 1962.
More than one player in VDA
When two or more players are involved in a transfer of Virtual Digital Assets that occurs on or through an Exchange and involves the VDA that the Exchange owns. According to section 194S of the Act, the buyer is required to deduct tax. The buyer might not be aware that the exchange owns the VDA being transferred, which could be a practical problem. Customers may, therefore, be aware of their obligation to withhold tax in accordance with section 194S of the Act. This issue would still exist if the buyer purchased VDA through a broker from an Exchange.
To avoid any confusion, it is made clear that while the buyer or his broker is still primarily responsible for withholding tax under section 194S of the Act in this situation, the exchange may also agree in writing with the broker that the exchange will pay the tax for such transactions prior to the deadline for that quarter.
For each of these quarter transactions, the Exchange would need to update a quarterly statement (in Form No. 26QF) by the deadline outlined in the Income-tax Rules of 1962.
Additionally, the Exchange would have to update its tax return and incorporate all of these transactions. The buyer or his broker would not be considered an assessee in default under section 201 of the Act for these transactions if these requirements were met.
Conclusion:
In accordance with section 194S of the Act, the tax must be withheld from any payments made to residents as payment for TDS returns filing on virtual digital assets. As a result, under section 194S of the Act, the buyer (i.e., the person providing the consideration) is required to withhold tax in a peer-to-peer (i.e., direct buyer-to-seller) transaction, according to the circular. If section 194S of the Act is registered at the time any money is credited or paid (depending on which occurs first) as consideration for the transfer of VDA, any sum credited before July 1, 2022, will not be subject to tax deduction under section 194S of the Act.
