April 18, 2024

TDS on Cryptocurrency in India from 1st July 2022: Explained

Crypto Tax

Crypto Tax

TDS (Tax Deducted at Source) on Cryptocurrency in India from 1st July 2022: Explained . After much anticipation, confusion, and a lot of back and forth, we finally have a TDS working. So, I have taken a lot of simplified examples and how TDS would work from WazirX’s blog

Here are few examples, as well as explanation in the simplest possible way how TDS would work on Cryptocurrency in India:

  • DS provisions are applicable from 1 July 2022. These provisions will not affect any trades executed before 1 July 2022. As per these provisions, TDS would be deducted on each trade where a Crypto asset is exchanged for INR or another Crypto asset.

Please Note: If you have placed orders before the 1st of July 2022, but the trade happens on or after the 1st of July 2022, the TDS provisions will apply.

  • No TDS would be deducted from the buyer on buying Crypto using INR, while the seller of the Crypto asset would be liable to pay TDS. However, when a Crypto asset is bought by paying with another Crypto asset, i.e., trading one Crypto asset for another, the TDS would be payable by both sides.
  • Wherever applicable, 1% TDS will be deducted from the receivable INR or Crypto amount. However, as per Section 206AB of the Income-Tax Act, 1961, if the user has not filed their Income Tax Return in the last 2 years and the amount of TDS is ₹50,000 or more in each of these two previous years, then the TDS to be deducted (for Crypto-related transactions) will be at 5%. For simplicity, in the rest of this blog, we will use 1% as the rate of TDS.

TDS collected in the form of Crypto

The TDS collected needs to be paid to the Income Tax Department in the form of INR. For this, any TDS collected in the form of Crypto has to be converted to INR. For ease of conversion and to reduce price slippage, in Crypto to Crypto transactions, the TDS for both sides would be deducted in the quote (or primary) Crypto asset. WazirX markets have 4 quote assets- INR, USDT, BTC, and WRX. For example, in the following markets: MATIC-BTC, ETH-BTC, and ADA-BTC, BTC is the quote Crypto asset, and hence the TDS of both the buyer and seller trading in these markets would be deducted in BTC.

    • Examples:

      • INR markets: 1 BTC traded for 100 INR. BTC seller receives 99 INR (after 1% TDS deduction). BTC buyer receives 1 BTC (no TDS deducted).
      • Crypto-Crypto markets: 1 BTC sold for 10 ETH. BTC seller receives 10 ETH by paying 1.01 BTC (after 1% TDS addition). BTC buyer receives 0.99 BTC (after 1% TDS deduction).

P2P trades

  • In P2P trades. 1% TDS would be deducted before a USDT sell order is placed. No TDS has to be paid by the P2P USDT buyer.
    • Examples:

      • Seller places an order for selling 100 USDT. Post 1% TDS deduction, a sell order would be placed for 99 USDT. The buyer would pay for 99 USDT, and the corresponding INR would be transferred to the seller’s bank account by the buyer.
      • If the entire 99 USDT is not successfully sold, 1% TDS would be deducted only in proportion to the amount sold, and the remaining of the 1 USDT locked for TDS would be released back to the seller on order cancellation.

The TDS will be calculated on the ‘net’ consideration payable after excluding GST/charges levied by the Exchange. Any TDS collected in Crypto would be periodically converted into INR. The INR value received would be updated against the respective trades.

To make things more transparent, the TDS deducted would be specified on the order details page immediately after trade execution. In cases where the TDS is deducted in the form of any crypto asset, the corresponding INR value of the TDS deducted can be found in the trading report after 48hrs.

If you have any questions or if you need any help, do let me know. You can connect with us on Social Media as well. If you are planning to start investing do check out Binance and WazirX. Check our Cryptocurrency tab for more related stories.

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