India’s 1% TDS & 30% Tax on Crypto: A Glossary
Introduced in the Finance Bill of 2022, TDS for Virtual Digital Assets (VDA), as called 194S in the Income-Tax Act of 1961 – announced the levying of 1% TDS on any consideration paid for the transfer of Virtual Digital Assets. Since the implementation of the 1% TDS or Tax Deducted at Source, for crypto transactions taking place within the country and here’s a refresher for you.
WHAT ARE VIRTUAL DIGITAL ASSETS?
Digital assets which are not physical or tangible are classified as Virtual Digital Assets. In layman’s terms, it basically means cryptos, DeFi (decentralised finance) and non-fungible tokens (NFTs). Prima facie, excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptos.
WHAT IS TAX DEDUCTED AT SOURCE (TDS)?
According to official definitions, tax deduction at source in India is a means of collecting tax on income, dividends, or asset sales by requiring the payer to deduct tax due before paying the balance to the payee. Under the Indian Income Tax Act of 1961, income tax must be deducted at source as per the provisions of the Income Tax Act, 1961.
WHAT IS 1% TDS IN CRYPTO?
Continuing from the definition mentioned earlier, when you sell a crypto on CoinDCX, you (or the exchange facilitating the transaction) will have to deduct and withhold 1% of the transaction value as TDS, which is then paid to the Government.
In case of a situation where the investor is buying the crypto with another crypto (for example: buying BTC with USDT) – the 1% TDS will be applicable on both the buy and sale transactions.
As per the Income Tax regulations, if you have done transactions (both buy and sell) for less than ₹10,000, TDS may not be applicable. But please note that these limits apply at user level across all exchanges they make trades on. Since CoinDCX would not be aware of the trades across other platforms, we will be required to deduct TDS from the first applicable transaction effective 1 July, 2022.
WHAT IS 30% CRYPTO TAX?
Also mentioned in the new Finance Bill of 2022, from 1 April, 2022, income from transfer of virtual digital assets or cryptocurrencies became taxable at 30%. Such income will be taxable even if taxpayers’ total income is below the threshold limit of ₹2.50 lakh. Further, no deduction other than cost of acquisition is allowed while computing the taxable amount.
Along with that, setting off of losses against profits is also disallowed in this investment segment, thus shutting out a major scope for savings on the tax liability.
WHEN WAS CRYPTO TAXATION IMPLEMENTED?
As mentioned earlier, taxation of virtual digital assets (VDAs) or “crypto tax” proposed in the Union Budget 2022-23 went live from 1 April after the Finance Bill was passed in the Lok Sabha.
EXERCISE TIME: HOW MUCH TAX DO I HAVE TO PAY EXACTLY?
Well for this, let us take an example to clear the air. Say you invested a total of ₹1,00,000 (1 lakh) and were able to generate a profit of ₹50,000 from that investment in a financial year. How much of a tax would you have to pay? Take a look at this snapshot.
|30% OF PROFITS||15,000|
|1% TDS ON SALE||1,000|
|TOTAL TAX PAID||16,000|
Also read: 30% Crypto Tax Guide
CAN I SEE TDS ON THE COINDCX APP?
Yes! Take a look at this infographic to get a clear picture how it would look like.
CAN YOU CLAIM THE 1% TDS ON CRYPTO?
Well, since the TDS will be deducted every time you execute a trade, the money will only be open for refund from the Government’s coffers at the end of the financial year when you are filing your Income Tax Returns. Now, while filing your ITR, only if your tax liability is less than the TDS you have already paid to the Government, only then can you claim a refund of the difference amount.
WHAT IS SECTION 206AB IN THE INCOME TAX ACT?
As per Section 206AB of the Income Tax Act, 1961, if any user has not filed their Income Tax Return in the last two years and the amount of TDS is ₹50,000 or more in each of these two previous years, those users are considered defaulters.
We will temporarily block those defaulter’s accounts from July 1, 2022. For further assistance, they can reach out to our Support team by raising a ticket here. With all due diligence and adhering to our compliance norms, we will help out each of such account holders.
HOW CAN I AVOID GETTING TAXED IN CRYPTO?
Unfortunately, if you have conducted a transaction in crypto, you will be required to pay tax on the profits you earn from the transaction as well as the 1% TDS on the crypto sale amount in the same transaction. There is no way you could possibly avoid getting taxed if you trade or invest in crypto. However, technically speaking you won’t be taxed until you book your profits, or in other words, sell your investments at a profit.
Read more FAQs on TDS on Crypto here.
Top Queries on Crypto Tax 2022 by CoinDCX Community
Disclaimer: “The information and material contained are subject to change without prior notice including prices which may fluctuate based on market demand and supply. The material available on the site is proprietary of CoinDCX, its parent, and its affiliates and is for informational purposes and informed investors only. This material is not: (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, or (ii) intended to provide accounting, legal, or tax advice, or investment recommendations. Please note Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.”