Understanding TDS and its Application to Crypto
In the Union Budget 2022, the Indian Government introduced new tax policies for cryptocurrencies. The Central Board of Direct Taxes (CBDT) issued a circular in June 2022, which outlined the tax rules for digital currencies. One of these rules is the “1% TDS on crypto,” which refers to the tax deducted at the time of making a transaction involving cryptocurrencies.
What Exactly is TDS?
Tax Deducted at Source (TDS) is when a person deducts tax from a specified payment made to another person. The deducted amount goes directly to the Central Government. The person from whom the TDS is deducted can claim a credit for it based on Form 26AS or a TDS certificate.
What is 1% TDS on Crypto?
The Indian Government announced that a 1% TDS is chargeable on all virtual digital asset (VDA) transactions. This applies when digital assets are transferred from one person to another or during purchases. However, it does not apply when assets are transferred between wallets of the same person. The exchange facilitating the transaction deducts 1% of the transaction value as TDS and pays it to the central government.
What Do You Need To Do For TDS Deduction?
As a buyer or seller on an exchange, you don’t need to take any action regarding TDS. The crypto exchange will deduct the tax amount according to CBDT guidelines. They will also provide you with regular TDS statements.
How to Calculate TDS on Your Crypto?
To calculate TDS, let’s say you sold Rs. 1,000 worth of ETH on a crypto exchange. The 1% TDS would be deducted from the final sale amount of Rs. 1,000, which comes to around Rs. 10.
Impact of 1% TDS on Crypto Investors
The Indian Government implemented the 1% TDS on crypto to record all transactions and prevent tax evasion and illegal activities. While the financial burden is not significant for investors, compliance becomes crucial. Investors must now keep records of every transactional purchase.
The combination of the 1% TDS and the 30% tax on crypto earnings has added complexity to the crypto industry in India. Some investors have become hesitant about entering the market due to these tax policies.
Hot Take: Future Changes in Tax Policies
The upcoming Union Budget in 2024 may bring changes to the current tax policies for virtual digital assets. However, it is an interim budget before the elections, so it’s uncertain whether cryptocurrencies will be addressed. Any modifications to these policies can have a significant impact on the crypto industry in India.
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