As announced in Budget 2022, the purchase of virtual digital assets, crypto and NFTs (as notified by the government) will attract TDS. While purchasing a VDA, the buyer has to deduct tax at the rate of 1% of the amount paid before it is paid to the seller. The new TDS rule has come into effect from July 1, 2022.

However, note that TDS will be applicable only if the transaction amount exceeds the specified limit. The specified limit can be broken into either a single transaction or multiple transactions. Hence, when will TDS not be applicable on the purchase and sale of VDA and crypto?

when is TDS on VDACrypto not applicable?

As per income tax laws, TDS on cryptoVDA will not be applicable if:

a) if the amount paid by the ‘specified person’ during the financial year does not exceed Rs.50,000, or

b) If the amount paid by any person other than the ‘specified person’ mentioned above does not exceed Rs.10,000 during the financial year.

Who is a ‘Specified Person’ as per Income Tax Act?

As per section 194S of the Income Tax Act, 1961, a specified person is:

a) an individual or Hindu Undivided Family (HUF) having no income under the head ‘Profits and gains of business or profession’ or,

b) An individual or Hindu Undivided Family (HUF) whose income is covered under the head ‘Profits and gains of business or profession’. The total sales / gross receipts / turnover from the business carried on by him does not exceed Rs 1 crore or in case of profession, the turnover does not exceed Rs 50 lakh in a financial year.

Abhishek Soni, CEO of ITR filing website tax2win.in says, “An individual or HUF (not having income from business or profession) need not deduct tax on purchase of cryptocurrency, if the amount paid during the financial year 50,000. An individual or HUF having income from business or profession should ensure that their turnover in the financial year immediately preceding that year does not exceed the specified limit (Rs. 1 crore for business turnover/ Rs. 50 lakh for profession) Rs).

What does the law say on VDA, TDS on crypto?

As per the new law (effective July 1, 2022), the buyer of VDA is required to deduct 1% of the amount paid to the seller (resident Indian) as Tax Deduction at Source (TDS). Tax should be deducted at the time of credit of the amount or at the time of payment to the resident individual, whichever is earlier.

In case PAN of the deductee (seller) is not available, tax will be deducted at the rate of 20% at the time of transfer of VDA. Further, if a person (seller) has not filed his income tax return, TDS will be deducted at a higher rate of 5% (as against the normal rate of 1%).

TDS is applicable even when payment is made in kind or two VDAs are exchanged.