How Much TDS on Crypto Transactions In India and How to Avoid It?
Tax Deducted at Source (TDS) is something that traders and investors are not fond of but have to deal with it anyway. And India recently implemented TDS on crypto. One important taxation tool that makes sure taxes are taken out of the source of income is TDS. It functions as an advance tax that the payer deducts from earnings when they pay for things like rent, salaries, or expert advice.
In India, TDS on Crypto was put into effect on July 1, 2022. It served as a sort of introduction to the initial taxation of VDAs. To be exact, virtual digital assets (VDAs) are currently subject to a flat rate of 1% TDS. All sell-side cryptocurrency transactions in India, regardless of profit or loss, are subject to a 1% tax.
What is TDS on crypto?
TDS (Tax Deducted at source) is a special kind of tax aiming to collect tax from the very source of income. According to law, a person liable to make payment of specified nature to someone else shall deduct tax at source and remit the same into the account of the Central Government. The motive behind TDS is that there should be a proper, timely record-keeping of tax collection, and there is no possibility of tax evasion. Simply put, it is a tax imposed on your income and is collected instantly through deduction of your income/source hence termed TDS. There are different-different types of TDS slabs for different kinds of income. For example, there are 10 % TDS on revenue generated through interest on bank savings. There are specific taxation provisions for a refund while filing an Income Tax return, but that is also a complex process.
Taxing the crypto world
Since Cryptocurrencies are new to the world, there is a lot of skepticism towards them. Anyway, there is some optimism in India now regarding the crypto-verse. Earlier, we all used to debate whether cryptocurrencies were legal or illegal. Well, the debate is moving towards some settlement with Some major announcements concerning Cryptocurrency in the budgetary session of 2022, which indicate the legalization of Cryptocurrencies.
The government has announced a 30 percent Income tax on any Virtual Digital Assets (VDA) earnings. The government has referred to VDA as any cryptocurrency or Non-fungible Token. The profit earned through investment in the crypto-verse will be taxed at the time of crypto withdrawal to INR. Apart from that, there are 1% TDS on crypto transaction. The TDS provision is a complex task to understand. Let's dive deeper to have crystal clear knowledge of this provision
There were several ambiguities regarding TDS' imposition on Cryptocurrency. The Central Board of Direct Tax has issued a circular dated 22 June 2022, clarifying the issue and eliminating existing ambiguities.
How much TDS on Crypto Transactions in India ?
The onus of bearing the TDS on crypto will be on the selling party and not on the buying party if the trade/transaction is in crypto to INR nature. For instance, if someone wants to sell their crypto and wants to sell in terms of INR, then the onus lies on the crypto seller.
If the transaction took place in crypto-to-crypto terms, then both buyer and seller are liable to TDS. For a hypothetical example, there is a transaction of 1BTC for 10 GanderCoin. BTC seller receives 10 Gander Coin by paying 1.01 BTC (after 1% TDS addition). BTC buyer receives 0.99 BTC (after 1% TDS deduction).
In the case of peer-to-peer transactions that do not include any Exchange, the responsibility lies at the buyer's end to deduct tax and file the TDS return. However, here more clarification is needed by the government. It is complex.
Generally, all the trading and investments happen through the crypto Exchange. All such kinds of transactions mentioned above are done on an Exchange platform. To simplify the TDS on cryptocurrency collection and filing process and have a hassle-free experience, it becomes the responsibility of Crypto Exchange to collect and file TDS on behalf of its user. In the case of crypto to crypto trade, the deducted crypto is converted to stable coins like USDT and then to INR.
As we can see, there are some compliance issues that an exchange needs to follow. Since the crypto TDS is rolling out on 1st July, all Exchanges need to upgrade their systems and policies. We at CoinCRED Exchange are well set with all necessary up-gradation. Hence, we highly recommend our CoinCRED Exchange - India's most trusted and reliable platform for crypto trading. Furthermore, it is mandatory to have KYC linked with PAN Card on the crypto exchange. The failure of adherence to policy 20% TDS will be deducted as a penalty from 1 July 2022.
How to avoid tax on Cryptocurrency in India ?
There is no way you can avoid cryptocurrency tax. However, the government has provided some exemptions under section 194S through the compliance with rules mentioned under the exemption category can prevent TDS on crypto taxation.
Exemptions
For individuals (excluding specified persons), the annual transaction should not exceed 10 thousand in a financial year.
For a Specified Person, the annual transaction should not exceed 50 thousand in a financial year.
The government has defined specified persons as mentioned below:-
An individual or Hindu undivided family (HUF) who does not have any income under the head "profit and gains of business or profession."
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 VDA (Virtual Digital Assets) is transferred.
Conclusion:
Well, Crypto experts have mixed views regarding 1% TDS on crypto. Some say it will severely affect the liquidity in the Crypto market. Some say it is the first move in the direction of legalization and can be a factor in accommodating more people in the cryptocurrency market. Well, all such things will be answered slowly and gradually through the behavior of people and the market.
Written By: Manish Makkar
