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TDS disclosure requirements for virtual currency and digital assets are announced by CBDT.
For TDS deductions for virtual digital assets, the income tax department has published precise disclosure rules, under which the date of transfer and method of payment must be indicated.
Because Section 194S of the I-T Act was added by the Finance Act of 2022, payments for virtual digital assets or cryptocurrencies over Rs 10,000 per year would be subject to tax deducted at source (TDS) of 1% beginning of July 1.
On June 21, the Central Board of Direct Taxes (CBDT) announced changes to the I-T Rules regarding the submission of TDS returns in Forms 26QE and 16E in preparation for the introduction of the new provision.
The TDS gathered under Section 194S must be deposited within 30 days after the end of the month in which the deduction was effected, according to a CBDT notification. The challan-cum-statement Form 26QE must be used to deposit the tax that has been so deducted.
Neeraj Agarwala, a partner at Nangia Andersen LLP, stated that in order for the specified persons to submit Form 26QE, they must keep records of information such as the date that virtual digital assets (VDAs) were transferred, the value of the consideration, the type of consideration received, such as cash or in the form of another VDA, etc.
These forms comply with the recently added Section 194S regulations. The forms must have thorough disclosures in order to comply with these requirements.
According to Agarwala, the designated individuals “should be well-equipped to understand and receive the information required for compliance, as well as maintain the appropriate documentation to support these transactions.”
There is a higher need for clarity regarding the procedural compliances, according to Amit Maheshwari, an AKM Global Tax Partner, as there are only a few days left until the new TDS rules like Section 194R and 194S take effect.
“For payments on transfers of VDAs, the new forms like 26QE demand thorough information, including the date of the transfer and the amount paid/credited in cash, kind, or in exchange for another VDA. The tax department would be able to track the VDA transactions thanks to this “explained Maheshwari.
But, he continued, it will also make it more difficult for taxpayers to comply.
The finance ministry is also working on a frequently asked questions document on cryptocurrency taxation that will provide detailed explanations on when income tax is applicable to virtual digital assets.
Regarding the imposition of income tax on crypto assets, the 2022–23 Budget has provided clarity. As of April 1, these transactions are subject to the same 30% I-T plus cess and surcharges as winners from horse races or other speculative transactions.
Additionally, a 1% TDS has been implemented starting on July 1 for payments made in virtual currencies that exceed Rs 10,000. For designated persons, such as individuals or HUFs required to have their accounts audited under the I-T Act, the threshold limit for TDS will be Rs 50,000 per year.