According to the latest circular issued on June 28, 2022, “As per section 194S of the Act, any person who is liable to pay any amount by way of consideration for transfer of VDA to any resident shall be entitled to deduct tax Thus, in a peer-to-peer (ie, buyer to seller without going through an exchange) transaction, the buyer (ie, the person paying the consideration) is required to deduct tax under section 194S of the Act. is needed.”
Thus, the circular has clarified that the buyer of the VDA is required to deduct tax while paying the money to the seller of the VDA, even if no third party is involved.
However, it may happen that the payment is made in kind or in lieu of another VDA. So how will TDS be deducted?
The latest circular issued clarifies that there may be a situation where the consideration may be in kind or in lieu of any other VDA or partly in kind and cash is not sufficient to meet the TDS liability. In this case, the person responsible for paying such consideration is required to ensure that the tax required to be deducted has been paid in respect of such consideration, before issuance of the consideration.
This would mean that before the payment is made in kind or the VDA is exchanged, the buyer of the VDA needs to ensure that the tax has been deducted and paid. A sales transaction will take place only if the seller provides proof of taxes paid (such as invoice details).
The circular has explained it with an example. In a situation where VDA “A” is being exchanged with another VDA “B”, both persons are both buyer and seller. One is buyer for “A” and seller for “B” and the other is buyer for “B” and seller for “A”. Thus, both the parties have to pay tax in respect of transfer of VDA and the other has to show proof so that VDA can be exchanged. After this both have to report it in TDS statement along with challan number. This year Form 26Q contains provisions for reporting such transactions. For specified persons, Form 26QE has been introduced.
How will the tax deducted on the sale be collected?
The circular further states, “The tax so deducted is required to be deposited with the Government in accordance with the time and procedure prescribed in the Act read with the relevant provisions of the Income-tax Rules, 1962. After deduction, the deductor shall be liable to pay the tax under the Income-tax Rules, 1962. Submit a quarterly statement (in Form No. 26Q) for all such transactions of the quarter on or before the due date specified in the Form 26QE has been submitted for the specified person. It may be clarified that TDS VDA less GST will be considered for transfer.
Read also: How TDS on Crypto, VDA will work from July 1