TDS on crypto

TDS on crypto

Subject :Economy

Section :Fiscal Policy

Context:

Buyer of virtual digital assets (VDA) outside crypto exchanges will now be required to deduct the tax at source (TDS) on the payment made in cash to the seller under section 194S of the Income Tax Act.

Details:

• Transactions taking place outside the exchange are called ‘peer to peer’ (P2P) transactions.
• For P2P transactions, the buyer (person paying the consideration) is required to deduct tax and deposit with the government, in case the consideration is other than in kind.
• In case of exchange of one VDA with another, both buyer and seller are required to deduct the tax.
• In a situation where VDA ‘A’ is being exchanged with another VDA ‘B’, both the persons are buyer and seller. Hence, both would  need to pay tax with respect to transfer of VDA and show the evidence to one another and then report the same in TDS statement.
• The buyer and seller will not be required to apply for TAN for depositing the TDS under 194S, other implications of section 206AA for non-furnishing of PAN to each other would still be required to comply with.
• Rate of TDS under newly-inserted section 194S in the Income Tax Act is 1 percent.

Concept:

Tax Deducted at Source:

• TDS or Tax Deducted at Source is a specific amount that is reduced when a certain payment like salary, commission, rent, interest, professional fees, etc. is made.
• The person who makes the payment deducts tax at the source, while the person who receives a payment/income has the liability to pay tax.
• It lowers tax evasion because the tax will be collected at the time of making a payment.

Example-Let’s assume that a start-up company pays Rs.90,000 as rent every month to whoever owns the property. The TDS applicable to the amount is 10%, so the company must subtract Rs.9,000 and pay Rs.81,000 to the property owner. In this case, the owner of the property will receive Rs.81,000 following TDS. The owner can add the gross amount of Rs.90,000 to his income, thereby allowing him to take credit for the Rs.9,000 that has already been deducted by the company.

Some of the income sources that qualify for TDS:

• Salary
• Amount under LIC
• Bank Interest
• Brokerage or Commission
• Commission payments
• Compensation on acquiring immovable property
• Contractor payments
• Deemed Dividend
• Insurance Commission
• Interest apart from interest on securities
• Interest on securities
• Payment of rent
• Remuneration paid to the director of a company, etc
• Transfer of immovable property
• Winning from games like a crossword puzzle, card, lottery, etc.

Tax Deduction Account Number or Tax Collection Account Number is a 10 -digit alpha-numeric number issued by the Income-tax Department. TAN is to be obtained by all persons who are responsible for deducting tax at source (TDS) or who are required to collect tax at source (TCS).

Section 206AA 

It requires every taxpayer who receives taxable income to furnish their PAN to the payer of such income. This applies to both the resident as well as non-resident recipients. The payments in case of residents would include salary, rent, professional receipts, contractual receipts and so on. In the case of non-resident, these would include all receipts that are taxable in India.A recipient of taxable income should furnish PAN to comply with the provisions of TDS under the Income Tax Act. Upon furnishing the PAN, payments made to the recipient would be taxed at the rate of TDS specified under the various TDS provisions of the Income Tax Act. A recipient who does not furnish PAN would suffer TDS at the higher rates specified in Section 206AA. The recipient is also required to furnish his PAN to the payer and both of them are required to indicate the same in all correspondence, bills, vouchers and other documents which are sent to each other.