In peer-to-peer (P2P) transactions, a buyer paying cash for transfer of Virtual Digital Assets (VDA) or crypto assets will have to deduct tax at source at the rate of 1% and deposit the amount with the government. The Income Tax Department clarified on Tuesday.
Furthermore, if the idea is in kind or in exchange for any other crypto, both buyer and seller must pay Tax Deduction at Source (TDS) on crypto transactions.
The clarification is part of the circulars that the Central Board of Direct Taxes (CBDT) has been issuing to address the difficulties with regard to the implementation of TDS on crypto transactions.
The department last week issued guidelines for crypto transactions conducted through exchanges. However, experts are of the view that the circular does not specify the obligations in case of P2P transactions.
CBDT in the latest circular has said that if a person is paying any amount for transfer of digital assets to a resident, he should furnish a quarterly statement (in Form No. 26Q) for all such transactions of the quarter. Necessary.
In cases where the payments are in the form of any other crypto, the person responsible for paying such consideration has to ensure that the tax deducted has been paid, prior to issuance of consideration.
According to the department, if one VDA is being exchanged with another, then both the persons are both buyer and seller. Thus, both need to pay tax in respect of transfer of VDA and show proof to others so that VDA can be exchanged.
Proof of exchange will be required to be reported by both seller and buyer in TDS details along with invoice number.
“This will increase the compliance burden for both buyers and sellers in off-exchange transactions, where the exchange will take care of these compliances,” said Amit Maheshwari, tax partner, AKM Global. strong.
As per income tax provisions, no TDS will be applicable if the payer is a specified individual (an individual or Hindu Undivided Family (HUF), which is not subject to tax audit) and the total value of consideration is less than 50,000 during the financial year. In other cases, no TDS is applicable if the consideration does not exceed 10,000 in total during a financial year.