CBDT Updates TDS Disclosure Requirements for Cryptos, Virtual Digital Assets

The Income Tax Department has come out with detailed disclosure requirements for TDS deductions for virtual digital assets, under which date of transfer and mode of payment will have to be specified.

From July 1, tax deducted at source (TDS) of 1 percent will be levied on payments towards virtual digital assets or cryptocurrencies beyond Rs 10,000 in a year, as the Finance Act 2022 has introduced Section 194S in the I-T Act.

In the run up to implementation of the new provision, the Central Board of Direct Taxes (CBDT) on June 21 notified certain amendments in I-T Rules with respect to furnishing TDS returns in Form 26QE and Form 16E.

CBDT has notified that the TDS collected under Section 194S shall be deposited within 30 days from the end of the month in which the deduction has been made. Deposit of tax so deducted shall be made in the challan-cum-statement Form 26QE.

Nangia Andersen LLP Partner Neeraj Agarwala said to furnish Form 26QE, the specified persons would be required to maintain details like date of transfer of virtual digital assets (VDAs), value of consideration, mode of consideration -- whether cash or kind or in exchange of another VDA etc.

"These forms are in line with the recently introduced provisions of Section 194S. Complying with these sections, the forms require detailed disclosures.

"The specified persons should be well-equipped to understand and obtain the information required for compliance, as well as maintain the appropriate documentation to support these transactions," Agarwala said.

AKM Global Tax Partner Amit Maheshwari said since only a few days are left for the new TDS provisions like Section 194R and 194S to come into play, there was a greater need to have a clarity on the procedural compliances.

"The new forms such as 26QE require detailed information for payments on transfer of VDAs such as the date of transfer of VDA to amount paid/ credited either in cash or kind or in exchange of another VDA. This will help the tax department to trace the VDA transactions," Maheshwari said.

But it will also increase the compliance burden on taxpayers, he added.

The finance ministry is also working on an FAQ on taxation of cryptocurrency, which will give nuanced clarifications on applicability of income tax on virtual digital assets.

The 2022-23 Budget has brought in clarity with regard to levy of income tax on crypto assets. From April 1, a 30 percent I-T plus cess and surcharges, is levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.

A 1 percent TDS on payments over Rs. 10,000 towards virtual currencies has also been introduced which will kick in from July 1. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act.