Section 194S – TDS on transfer of Virtual Digital Assets
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In the Finance Act 2022, a new TDS section 194S, has been inserted in the Income Tax Act, and which has been made applicable e.f. 1.7.2022.
Eligibility criteria for tax deductor under Section 194S:-
Any person (Resident or Non Resident) responsible for paying to any resident, any sum by way of consideration for transfer of a virtual digital assets (VDA), to deduct TDS u/s 194S.
TDS deduction under Section 194S is not required to be made in following cases :-
1. The consideration is payable by a “specified person” and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year;
or
2. The consideration is payable by any person “other than a specified person” and thevalue or aggregate value of such consideration does not exceed ten thousand rupees during the financial year
The following are defined as “specified person” for the purposes of this provision:
- An individual or Hindu undivided family (HUF) who does not have any income under the head “profit and gains of business or profession”; and
- An individual or HUF having income under the head “profits and gains of business or profession”, whose total sales/gross receipts/turnover from business carried on by him does not exceed one crore rupee or in case of profession exercised by him does not exceed fifty lakh rupee. This threshold is to be seen in the financial year immediately preceding the financial year in which the virtual digital assets (VDA) is transferred.
Amount of Deduction under Section 194S
- Any person (Resident or Non resident), who is responsible for paying to any resident, any sum by way of consideration for transfer of virtual digital assets (VDA) to deduct tax at source (TDS) at a rate of 1%.
- The TDS is required to be made on whichever is earlier:-
- At the time of credit of such sum to the account of the resident
or
- At the time of payment
- GST and charges levied by the deductor for rendering service is to be excluded, for the Purpose of TDS Deduction.
Certain condition for tax deduction under Section 194S :-
- Only resident Payees are covered u/s 194S
- For F.Y. 2022-23, the consideration of transfer of virtual digital assets in the Period from 1.4.2022 to 30.6.2022 will be counted and considered for determining the threshold limit of Rs. 50,000 or 10,000 (as case may be) in a year, but TDS u/s 194S will not be deducted on such transaction. TDS u/s 194S will be deducted only on consideration for transfer of VDA credited or paid on or after 1.7.2022.
- Since the provision of section 194S applies at the time of credit or payment (whichever is earlier) of any sum, representing consideration for transfer of virtual digital assets, such sum which has been credited or paid before 01.07.2022 would not be subjected to tax deduct u/s 194S.
TDS 194S applicable for various scenario.
Transaction not in kind means cash/bank:-
| Sr. No. | Buyer | Seller | Broker involved | Exchange involved | Taxability |
| 1 | Any person | Any person | No | No | TDS u/s 194S required to be deduct by Buyer |
| 2 | Any person | Any person | No | Yes | TDS u/s 194S required to be deducted by exchange |
| 3 | Broker | Any person | Yes | No | TDS u/s 194S required to be deducted by broker |
| 4 | Any person | Broker | Yes | Yes | TDS u/s 194S required to be deducted by exchange |
| 5 | Any person | Any person | Yes | yes | If no written agreement between broker & exchange– Both exchange & broker required to be deduct TDS u/s 194S |
| If written agreement between broker & exchange– TDS u/s 194S required to be deducted by broker & exchange would be required to furnish a quarterly statement (in form no. 26QF). | |||||
| 6 | Any person | Exchange | Yes | yes | NO TDS required to be deduct, if exchange enter into agreement with buyer or broker that in regard to all such transactions the exchange would be required to furnish a quarterly statement (in form no. 26QF) , also exchange required to furnish income tax return and all transaction must be included in such return. |
Transaction in kind other than cash/bank:-
| Sr. No. | Buyer | Seller | Broker involved | Exchange involved | Remark |
| 1 | Any Person | Any Person | No | No | TDS 194S is required to be deducted by both buyer & seller their respective taxes |
| 2 | Any Person | Any Person | No | Yes | If no written agreement between exchange & buyer or seller –TDS 194S is required to be deducted by both buyer & seller their respective taxes |
| If written agreement between exchange, buyer & seller– TDS 194S is required to be deducted by exchange | |||||
| 3 | Any Person | Broker | Yes | Yes | If no written agreement between broker & buyer –TDS 194S is required to be deducted by both buyer & broker their respective taxes |
| If written agreement between broker & buyer– TDS 194S is required to be deducted by exchange if there is an agreement between the broker & exchange | |||||
| 4 | Any Person | Any Person | Yes | Yes | TDS 194S is required to be deducted by both buyer & seller their respective taxes |
| IF written agreement between buyer & seller with exchange & broker- TDS 194S required to be deducted by exchange & broker if there is no agreement between broker & exchange | |||||
| If written agreement between broker & exchange –TDS 194S is required to be deducted by broker | |||||
| 5 | Any Person | Exchange | Yes | yes | NO TDS required to be deduct, if exchange enter into agreement with buyer that in regard to all such transactions the exchange would be required to furnish a quarterly statement (in form no. 26QF) , also exchange required to furnish income tax return and all transaction must be included in such return. |
Transaction in kind other than cash /bank – transaction in kind other than cash/bank need to be convert into cash before deposit with the government :-
1. Primary virtual digital assets –Primary virtual digital assets (BT, ETH, USDT, USDC) which can be easily converted in INR.
2. Non Primary virtual digital assets- Non primary virtual digital assets (Deso/Monero) is first converted into equivalent of primary VDA then which have a Ready INR market.
Which time Virtual digital convert into cash
Market time limit will be form 00:00 hours to 23:59 hours. All Virtual digital assets (primary or convertible non primary VDA to primary VDA) will be accumulated for a day and then all accumulated balance of primary VDA at 00:00 hours will be converted into INR based on the market rate existing at that time.
For verification price and quantity data for every matched trade shall be maintained by the exchange. It shall be verifiable from the system coding that the conversion into INR happened at the first available buy order based on the prevailing buy order book of the respective exchange at the time of conversion and contract note will be issued over mail which will include the amount of TDS u/s 194S and amount of INR.
Applicability of Section 194Q – Without going into the merit whether VDA is goods or not, it is clarified that once
tax is deducted under section 194S of the Act, tax would not be required to be deducted under section 194Q of the Act.
Applicability of payment made through digital platform – Payment gateway will not be required to deduct TDS u/s 194S. if transfer of virtual digital assets and against this payment made through online/digital platform then TDS u/s 194S applicable only of transfer on digital virtual assets.
Author Bio
tds is levied on transactions/consideration , doesn’t matter it is profit or loss.
so how could we justify that even Tds is deducted on my trading but it’s not profitable but in form 26 trading amount showing as a income