What does Non Payment of TDS mean for Retail Crypto Investors

Recap Of The Crypto Tax Laws In India

The massive adoption of the crypto space since 2020 has not taken much time to grab the attention of the regulators. Quite honestly, crypto experts and the founders of the crypto exchanges in India has always been forthcoming in helping the government regulate the virtual digital asset space in order to reach a smooth trading and investing process for the evergrowing customers.

Pertaining to the rising demand of the crypto space, the Finance Minister Nirmala Sitharaman took to Union Budget 2022 to declare taxes on the crypto assets along with categorizing them as Virtual Digital Assets (VDA). Any profits that will or have been incurred from the VDA transactions are subjected to a 30% tax. Furthermore, if the transaction exceeds INR 10,000, it will be taxed by an additional 1%.

Following the announcement, the crypto community was eagerly waiting for the government to further clarify their take on the new asset class during the Union Budget 2023; where there was no mention of the crypto sector. The budget was held a day after the Economic Survey 2023 was released with concerns over the high volatility and need for global regulations for the rising crypto space. However, the Finance Bill, made a mention of an amendment in the Income Tax Act under section 271C, which stated that there will be steps taken for non-payment of crypto or VDA TDS.

As a customer-first exchange, CoinDCX believes in making the matters known to the customers for a safer and more secure method of investing. Therefore, today we will take a walk down the TDS lane to understand what it means and what is new in the Finance Bill!

Read More: Guide to Crypto Tax in India 2023

WHAT ARE VIRTUAL DIGITAL ASSETS?

Virtual Digital Assets are those which can be classified as digital assets that are not physical or tangible. In simple words, it means crypto token, DeFi (decentralised finance) and non-fungible tokens (NFTs).

What is TDS?

As per the provisions of the Income Tax Act, 1961, income tax must be deducted at source. So, TDS or tax deduction at source is basically a means of collecting taxes on income, dividends, or asset sales by requiring the payer to deduct tax due before paying the balance to the payee.

What is TDS in crypto?

In simple words, selling a crypto requires the exchange in use 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.

Who will deduct 1% TDS

According to an announcement by the Central Board of Direct Taxes (CBDT) – the tax amount can be deducted by the exchange itself under section 194S. However, as a buyer or seller on CoinDCX, you wouldn’t have to do anything. We at CoinDCX will handle the process entirely.

Note: As per the Finance Bill an amendment was mentioned in the Income Tax Act under section 271C, which stated that non payment of TDS would include 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.

With CoinDCX App #TDSNotTedious

Mentioned below is a list of occasions to help you keep a track of all your TDS on the CoinDCX App:

To simplify it further, CoinDCX helps you in a seamless procedure to keeping a tab on all your TDS payments.

• CoinDCX will share TDS statements with its customers at periodic intervals for keeping a record and keeping the users updated on further developments.
• CoinDCX pays the TDS on users behalf every time they do a transaction on the app. 
• Users can then get access to their TDS report & summary along with their TDS certificate at a click of button on the app itself to file their returns in the future.

All you have to do is, Go to Account > Download Report

And then click on TDS Summary or TDS Certificates

1% TDS sample calculation

To 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.

How is TDS calculated for crypto on the CoinDCX app:

Soon after the Budget Session ended with no mention of crypto, Sumit Gupta, CEO of CoinDCX, commented, “Was, obviously, hoping for a reduction in income tax on VDAs but that didn’t happen. India has one of the highest taxes on VDAs in the world. This is causing Indian users to shift their investments overseas. Not good for our country and those building in this sector in India.”

With the Budget 2022, the crypto market took a big hit in the Indian scenario, but the bear run of 2022, coupled with the FTX fiasco saw the market crash from its market valuation of $3 trillion in November 2021 to less than $1 trillion in January 2023; according to the Economic Survey of 2023.

Read On: USDC Stablecoin Depeg

How will it impact Investors

There are four scenarios that can play out at any given situation.

SITUATION 1 – BUYING CRYPTO WITH INR

TDS is not applicable in this situation. Since you are buying with INR, the government does not need you to pay for it just yet.

SITUATION 2 – SELLING CRYPTO FOR INR

The investor is required to pay the 1% TDS on the net value of the sell transaction.

SITUATION 3 – BUYING CRYPTO WITH CRYPTO 

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

SITUATION 4 – SELLING CRYPTO WITH CRYPTO 

In a situation like this, if the investor was selling their Bitcoin for USDT, they would need to pay 1% of the value of Bitcoin in INR that they would be selling as TDS.

Things investors should note

The lack of clarity have resulted in confusing details being posted on the internet regarding TDS on Crypto. To clear out any doubts, here are the important crypto tax pointers to be remembered.

The tax will be applicable during the assessment year of 2023-24.

• Start afresh by taking into consideration all the crypto assets that you have owned before April 2022.
• The tax will be paid in INR and not using any crypto, so keep a record of the INR transactions.
• Given that there have been profits on virtual digital assets, users have to file returns by filing the form known as Income Tax Return 1, 2, 3, or 4, as applicable.
• Institutions or businesses will have to file returns by filing the form known as Income Tax Return 5 or 6.
• In situations where the investor has bought a crypto with another crypto (for example: buying BTC with USDT) – the 1% TDS will be applicable on both the buy and sale transactions.

Note: As per the Finance Bill an amendment was mentioned in the Income Tax Act under section 271C, which stated that non payment of TDS would include 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.

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