FAQ’s on section 194S
The Finance Act, 2022 had inserted a new section 194S to the Income-tax Act, 1961 providing for deduction of tax at source (TDS) on transfer of a virtual digital asset (VDA). TDS under section 194S is applicable with effect from 1st July 2022.
Provisions of Section 194S in brief:
| Particulars | TDS u/s 194S |
|---|---|
| Deductor | A person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA) |
| Deductee | Any Resident |
| Rate | 1% of consideration for transfer of VDA |
| Threshold Limit |
Consideration > ₹ 50,000 per financial year for specified persons and Consideration > ₹ 10,000 per financial year for others Specified Person (i) An individual or Hindu undivided family (HUF) who does not have any income under the head “profit and gains of business or profession”; and (ii) An individual or HUF having income under the head “profits and gains of business or profession”, whose total sales/gross receipts/turnover from business carried on by him does not exceed one crore rupee or in case of profession exercised by him does not exceed fifty lakh rupee. This threshold is to be seen in the financial year immediately preceding the financial year in which the VDA is transferred. |
| Timing of Deduction | At the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier. |
To remove difficulties in implementing the provisions of section 194S, the Central Board of Direct Taxes (CBDT) has issued Circular No.13/2022 on 22nd June 2022 containing the guidelines in the form of questions/ answers. The Guidelines clear air on numerous vexed issues. We have summarized the incidence of TDS under various situations as provided in these guidelines.
| Mode of Transaction Settlement | Particulars of Transaction | Responsibility & mechanism of TDS deduction |
|---|---|---|
| In Cash | Peer to Peer Transaction (directly from buyer & seller) | Buyer |
| Where transaction takes place through an exchange and the VDA is owned by a person other than exchange | Exchange
(Which is crediting or making the payment to the seller or broker if broker is seller)
Where transaction between exchange & seller is routed through a broker:
|
|
| Where transaction takes place through an exchange and the VDA is owned by exchange | Though primarily the liability to TDS is upon the buyer. However, the exchange can enter into an agreement with buyer or his broker whereby the exchange would comply with TDS obligations. | |
| In Kind | Peer to Peer Transaction (directly from buyer & seller) | In this case, both parties are both buyer and seller in respect of one of the VDAs. They need to ensure that applicable tax has been paid before releasing the consideration (VDAs) and receive the proof of payment for records. |
| Where the transaction is through an exchange | TDS can be deducted by exchange based on written contractual agreement with buyer/ seller.
Exchange would deduct and deposit TDS on both legs of the transaction i.e. in respect of both the VDAs being traded. |
Other clarifications:
- Whether provisions of section 194Q would also apply on transfer of VDA?
No, section 194Q would not be applicable once TDS is deducted U/s 194S.
- Whether consideration for transfer of VDA shall be inclusive of GST and commission or it shall be net of GST & commission?
It shall be net consideration exclusive of GST & commission.
- Where the transaction is carried out through payment gateways, whether such payment gateways are also required to deduct TDS?
The Payment gateway would not be required to deduct TDS if it has already been deducted U/s 194S by the person responsible for deduction of tax.
- Whether Consideration for transfer of VDA before 01-07-2022 shall also be considered for calculation of threshold limit of Rs.50,000/- or Rs.10,000/- per financial year for specified person/ others respectively?
As such, for FY 2022-23, the consideration for transfer of VDA from 01-04-2022 to 30-06-2022 shall also be considered for calculating the value of Rs. 50,000/- or Rs.10,000/-, as the case may be.
Here are some illustrations for obtaining better understanding of the threshold limits:
Case: A (non-specified person) purchases some VDAs from B in the following manner:
Illustrations 1:
| 1 | VDAs purchased up to 30-06-2022 | Rs. 15,000 |
| 2 | VDAs purchased on or after 01-07-2022 up to 31-03-2023 | Rs. 45,000 |
In this case, TDS u/s 194S shall be deducted by A on an amount of Rs. 45,000 i.e. the VDAs purchased up to 30-06-2022 shall also be considered for determining the threshold limit for deduction of Rs. 50,000. However, since, 194S shall be effective from 01-07-2022, no TDS shall be deducted on VDAs purchased up to 30-06-2022.
Illustrations 2:
| 1 | VDAs purchased up to 30-06-2022 | Rs. 55,000 |
| 2 | VDAs purchased on or after 01-07-2022 up to 31-03-2023 | Rs. 45,000 |
In this case, TDS u/s 194S shall be deducted on an amount of Rs. 45,000 only. Again, TDS on an amount of Rs. 55,000 representing VDAs purchased up to 30-06-2022 shall not be deducted as Section 194S is applicable only from 01-07-2022.
Illustrations 3:
| 1 | VDAs purchased up to 30-06-2022 | Rs. 55,000 |
| 2 | VDAs purchased on or after 01-07-2022 up to 31-03-2023 | Nil |
In this case, no TDS u/s 194S shall be deducted as no VDAs have been purchased on or after section 194S becomes effective. It does not matter if the threshold of Rs. 50,000 has been breached because of purchases up to 30-06-2022.