On June 22, the Central Board of Direct Taxes (CBDT) clarified that the new clause mandates a person who is liable to pay any amount for transfer of virtual digital assets (VDAs) to any resident . Deduct an amount equal to 1% of such amount as income-tax thereon.
It also said that tax is required to be deducted at the time of credit of such amount in the account of the resident or at the time of payment, whichever is earlier.
However, deduction is not required in case of consideration payable by a specified person and the value does not exceed 50,000 during a financial year.
On the other hand, TDS up to discount 10,000 in a financial year applies to a person other than the ‘specified person’.
As per CBDT, the specified persons are – 1) an individual or Hindu Undivided Family (HUF) who does not have any other income under the head “Profits and gains of business or profession”; and 2) an individual or HUF whose income does not exceed “Profits and gains of business or profession” whose profits from the business carried on by him do not exceed 1 crore or in the case of profession exercised by him does not exceed 50 lakhs.
Under Section 194S of the Act, the CBDT has, with the approval of the Central Government, issued guidelines to remove the difficulties.
TDS on crypto assets explained:
In a blog on June 24th, CoinSwitch gave an example to better understand TDS. crypto asset, For example – imagine you need to sell 10 tokens (name the unit as A). The selling price of each token is currently 20 (Unit B). The commission and service charges including discount, exchange fee and GST (Entity D) on CoinSwitch, let’s say Rs.
According to CoinSwitch, in the example, total token sale price = A x B: 10 x 20 = 200 (unit C). Meanwhile, net sales would be = C – D = 200 – 1 = 199. Then, TDS will play a role on the token sale amount (ie 1% of) 199, or 1.99) (unit e). That said, the final amount will appear in your Coinswitch account = C – D – E = 200-1-1.99 = 197.01.
CoinSwitch explained that TDS will still be deducted despite the basic income tax exemption. However, if your total tax liability is zero or less, you can claim a refund, which you have already paid as TDS at the time of filing your annual income tax return.
TDS is applicable on sales transactions. The trading platform that you use will deduct this amount and remit it to the tax authorities on your behalf. CoinSwitch added in its blog, TDS will not be applicable on purchase transactions in most cases.
How do taxes affect crypto profits?
Siddharth Sogni, head of crypto market research firm Crabaco Global, expects 1% TDS to affect the crypto market in the long run. According to the expert, most of the liquidity providers in the crypto market have already backtracked due to India’s crypto policy, which is in line with the market prices right now.
Thus, now investors who had held onto their crypto assets in the past few months due to volatile markets as they did not wish to book losses – will further bear the brunt of 1% TDS.
According to Sogni, when prices return and investors want to sell – they will have no liquidity to do so. TDS within 15 days before July 1 may not be affected in the short term, however, after 45 days, the issues will become clear.
Eastern Sachar Head of Operations, Tezos India said, “Crypto taxation is absolutely detrimental to the future of this emerging and evolving technology as it will be demotivating and may result in slow adoption rate.”
According to Tezos India expert, currently, there is no offset for profit and loss and it gets worse if there is a net loss after offsetting and it is taxed at 30%.
“Crypto-assets need to be treated at the same level as other asset classes for the overall industry to grow in the long run,” Sachar said.
For example, any gain or gain arising from the sale of capital assets, including equity shares, mutual funds, bonds and other items, is subject to short-term and long-term capital gains taxation.
Capital assets which are held for more than 36 months are called short-term capital assets. In some cases, assets such as equity or preference shares, other listed securities, UTI units, equity-oriented fund units, or zero-coupon bonds in a listed company – held for no more than 12 months, are also classified as short-term assets is done. In the case of unlisted shares and immovable property, these assets held for not more than 24 months are also called short-term.
Meanwhile, a capital asset held for more than 26 months or 24 months or 12 months in the above cases is called long-term capital asset.
Under Short Term Capital Gains Tax, if Securities Transaction Tax (STT) is not applicable – short term capital gains become other income tax return item and the taxpayer is taxed as per income tax slab rates. However, short term capital gains tax is 15% if STT is applicable.
In respect of long-term capital gains tax, the above amounts are levied at the rate of 10% tax on sale of equity shares/units of equity-oriented funds. 1 Lac. The tax rate on assets except equity shares/equity-oriented funds is 20%.
At present, no TDS is applicable to domestic investors on their capital gains. However, NRIs are subject to TDS of 30% on short-term capital gains and 20% on long-term. Form 15G/15H wherever applicable is available and needs to be submitted to the IT department to avoid TDS.
From the above, it can be said that crypto gains or losses still have higher tax rates than both short-term and long-term capital gains taxation. Also, unlike 1% on crypto assets available to residents, TDS is limited to NRIs in capital assets.