TDS on Payment for Transfer of Virtual Digital Assets (VDAs)
Introduction
As per Section 194S, TDS must be deducted at a rate of 1% on payments made to a resident for the transfer of Virtual Digital Assets (VDAs).
Key Provisions
- Deductor:
o Any person (resident or non-resident) making payment for the transfer of VDAs.
o In over-the-counter (OTC) transactions, the buyer must deduct TDS.
o If VDAs are transferred via exchange platforms, the exchange is responsible for deducting TDS if it processes payments.
- Deductee:
o Any resident individual or entity receiving consideration for VDA transfers.
- Threshold for TDS Applicability:
o Rs. 50,000 (if the payer is an individual/HUF with a business turnover below Rs. 1 crore or professional receipts below Rs. 50 lakh or not having any business/profession income). [Specified Person]
o Rs. 10,000 (for all other payers).
- Time of Deduction:
o At the time of payment or credit, whichever is earlier.
o For intraday VDA trades, TDS is deducted each time a transaction is squared off.
Rate of TDS
- 1% of the consideration paid for VDA transfer.
- Higher rates apply if PAN is not provided (20% underSection 206AA)
Special Cases
- Exchange of VDAs:
o If VDAs are exchanged (e.g., Bitcoin for Ethereum), both parties are liable to deduct TDS.
o Before exchanging VDAs, each party must ensure that the other has paid the TDS.
- Consideration in Kind:
o Before releasing consideration for transfer of VDA, the payer must ensure TDS on such consideration is duly paid.
CBDT Guidelines
The CBDT has issued guidelines, vide Circular No. 13, dated 22-06-2022 and Circular No. 14, dated 28-06-2022, to address various difficulties and clarify several doubts.
Compliance Requirements
- TAN Not Required:
o Individuals and HUFs (specified persons) can deduct TDS using their PAN instead of obtaining a TAN.
- Deposit of TDS:
o Specified persons: Form 26QE within 30 days from the end of the month of deduction.
o Others: Challan ITNS 281 within 7 days from the end of the deduction month (by 30th April for March deductions).
- TDS Statement Filing:
o Specified persons: File Form 26QE.
o Others: Quarterly filing in Form 26Q.
- TDS Certificate:
o Specified persons: Form 16E within 15 days of Form 26QE filing.
o Others: Form 16A within 15 days of Form 26Q filing.
Consequences of Non-Compliance
- Failure to Deduct or Deposit TDS:
o Interest liability under Section 201.
o Penalty under Section 271C (up to the non-deducted amount).
o Prosecution under Section 276B.
- Failure to Furnish TDS Statement:
o Rs. 200 per day penalty under Section 234E (limited to TDS amount).
o Additional penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificate:Penalty under Section 272A.