1% TDS on Crypto in India | How it works? & How will it Impact Investors?

WHAT IS TDS?

According to the Income Tax official definition, the concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

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

WHAT IS TDS ON CRYPTO?

TDS, or Tax Deducted at Source for Virtual Digital Assets (VDA) was introduced in a new section of the Finance Bill of 2022, called 194S in the Income-Tax Act, 1961. It mentions levying a 1% TDS on any consideration paid for the transfer of Virtual Digital Assets.

In other words, 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.

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 July 1, 2022.

Also Read: Guide to 30% Crypto Tax in India

WHO WILL DEDUCT 1% TDS?

According to an intimation by the Central Board of Direct Taxes (CBDT) – the tax amount can be deducted by the exchange itself under section 194S.

To put it in another way, as a buyer or seller on CoinDCX, you wouldn’t have to do anything. We at CoinDCX will handle the process. Of course, TDS statements will be shared with you at periodic intervals for your records and will keep you posted on further developments.

However, the thing you have to note is that the TDS will be deducted on the final sale amount and not just on the profits. This is because, in the case of TDS, it doesn’t matter if you earn a profit or book a loss on your trade. It will be deducted, no matter what.

1% TDS SAMPLE CALCULATION

Let’s take an example. Say you sell Bitcoin today worth ₹1000. Now in this case, the 1% TDS would be deducted on ₹1000 (the sale amount), which in this example comes to around ₹10. Take a look at the infographic below for a better understanding. 

Additional Read: Crypto 1% TDS Glossary 

The Finance Bill 2023

Following the declaration of the TDS laws during the Union Budget 2022, there was a new Finance Bill that was shared after the Union Budget 2023. The new update stated;

An amendment was mentioned in the Income Tax Act under section 271C, in the Finance Bill, which stated that non-payment of TDS would incur a penalty amount which will be equal to the unpaid TDS that will be imposed by a joint commissioner or a jail term for up to six months. In case of any delay, this can amount to an interest rate of 15% per annum for late payment.

To make TDS simpler for the crypto community, CoinDCX, staying true to its customer-first approach; worked out a solution to make the app TDS compliant, while providing an easy-to-access crypto TDS certificate for continued seamless trading experience.

To simplify TDS filing for the users:

• CoinDCX pays the TDS on behalf of the customer.
• TDS certificate, report and summary are updated on the CoinDCX app itself.
• Users are sent TDS statements at periodic intervals to help them keep a record while also keeping the users updated on any further developments.

To explore #TDSNotTedious, follow the following process:

• Open the CoinDCX App
• Go to Account > Download Report

• Then click on TDS Summary or TDS Certificates

HOW WILL IT IMPACT CRYPTO INVESTORS?

So here’s how it will work for you, as an investor or trader on CoinDCX. There are four scenarios and any one of which is going to play out at any given situation. A brief explanation is given in the infographic above.

SITUATION 1 – BUYING CRYPTO WITH INR

In this situation, you don’t have to pay any TDS. Since you’re buying with INR, the government doesn’t need you to pay for it just yet.

SITUATION 2 – SELLING CRYPTO FOR INR

In this scenario, you will be required to pay the 1% TDS on the net value of the sell transaction. If you were selling ₹1000 of Bitcoin today, 1% would be deducted from the selling amount after deducting exchange transaction fees from it (Refer the example in the infographic before).

SITUATION 3 – BUYING CRYPTO WITH CRYPTO 

In this situation, you will be required to pay a 1% TDS on the sale transaction of the crypto you are exchanging for another crypto asset. For example, if you were using 1000 USDT to buy $1000 worth of Bitcoin, you will be required to pay 1% of 1000 USDT, or about 10 USDT as the TDS.

SITUATION 4 – SELLING CRYPTO WITH CRYPTO 

And finally, in this scenario, if you were selling your Bitcoin for USDT, you will need to pay 1% of the value of Bitcoin in INR that you would be selling as the Tax Deducted at Source.

Additional Read: Top Tweets on Crypto TDS 

THINGS INVESTORS NEED TO NOTE:

1. EFFECTIVE DATE

TDS provisions are applicable from 1 July, 2022. These provisions will not affect any trades executed before the mentioned date. As per these provisions, TDS would be deducted on each trade where a crypto asset is exchanged for INR or another crypto asset. However, if you have placed orders before 1 July, 2022 but the trades get executed post the date, the new TDS provisions will be applied on your transaction.

2. NO TDS ON BUYER

The provisions state that there is no TDS if the buyer purchases a Virtual Digital Asset (VDA) with INR. However, if the same buyer were to sell the VDA back for INR, the TDS would be applicable.

3. WILL TDS BE APPLICABLE EVEN AFTER PAYING 30% TAX?

Yes, the TDS will be applicable even if you pay the 30% income tax on the profits/gains. Both are different tax liabilities and both need to be fulfilled. However, the TDS can be claimed as a refund while filing ITR if Income Tax payable is less than the TDS deducted. It is advised that you consult your CA or financial advisor for more details on this aspect.

4. HOW WILL THE 1% TDS BE DEDUCTED ON THE COINDCX APP?

As per the regulations, the tax of 30% on your annual returns will be applied annually, during every financial year-end, while the 1% TDS will be made effective from 1st July on all sell orders and NFTs. Complying with the government regulations, CoinDCX is implementing the same on their CoinDCX App.

To know read: 1% TDS on crypto trade in CoinDCX App 

FREQUENTLY ASKED QUESTIONS ON 1% TDS on Crypto

Read more below:

FAQs on TDS on Crypto 

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.”