1% TDS On Crypto In India: How It Works & Its Impact On You?

TDS
The concept of TDS was introduced right with the taxation of crypto in India. However, this TDS on cryptocurrency in India also brought confusion and a lack of clarity among investors in India. We have carefully curated this blog for you to understand this analogy better.

The introduction of the 30% tax on your crypto holdings in India was soon followed by a 1% TDS, which ultimately settled the current landscape of crypto in the country, at least for now.

The TDS on cryptocurrency in India could be very dynamic as it might change over time. However, we can now understand the implications of this 1% TDS and how it affects you and your crypto trades.

What Is Considered A TDS On Cryptocurrency?

The Tax Deducted at Source (or TDS) is the income tax reduced from the money paid while making certain payments.

In the deduction of TDS, a person (the deductor) who owes a specific amount to another person or party (deductee) must deduct the tax at the source and remit it to the central government.

This TDS amount on crypto in India is deducted at 1%.

From July 01, 2022, as per the newly inserted Section 194S of the IT Act, TDS at the 1% rate will be deducted by the buyer when paying the seller for the transfer of Crypto/NFT. In case the transaction is made on an Indian exchange, then the Indian exchange will deduct the TDS and pay the balance amount to the seller. In this case, no action needs to be taken by the buyer.

Crypto tax filing blues?

Get 30% off using the code TAXBLOG30 with KoinX.

How To Calculate Your TDS On Cryptocurrency?

The TDS on cryptocurrency usually occurs in two scenarios:

P2P Transactions

In the case of P2P transactions, the buyer will be responsible for a deduction of TDS and filing form 26QE or 26Q, as applicable. 

Exchanges

In the case of trading on Indian exchanges, no TDS compliance is required of the buyer.

In the case of trading on International exchanges or Decentralised exchanges, TDS compliance is required by the Buyer.

Please note that in crypto-to-crypto trades, TDS will be applied to both buyer and seller at 1%.

TDS isn’t levied on amounts less than ₹50,000 or ₹10,000, as applicable in a fiscal year. Payments above this amount will be subject to  1% TDS.

Applicable Tax Clause

After the Central Board of Direct Taxes (CBDT) outlined the tax deductions of VDAs, the TDS regulations went into effect on July 01, 2022.

The rules of TDS apply to the transfer of VDA if:

  1. The seller is an Indian resident
  2. The buyers’ total payment during the financial year exceeds ₹50,000, or ₹10,000 as applicable.
  3. TDS has to be filed in form 26Q or 26QE as applicable

The 1% TDS needs to be subtracted depending on what occurs first – whether when the funds are credited to an account or paid to the individual.

Real-Life Scenario(s) Of Tax Computation On TDS On Cryptocurrency

Let’s say Anil sells 1 BTC for 19,000 USDT to Sunil. 

This trade occurred on an Indian exchange. 

In this transaction, Anil is selling 1 Bitcoin hence, the exchange will deduct 0.01 Bitcoin as TDS and deposit it against Anil’s PAN. 

Also, since Sunil sells 19,000 USDT, the exchange will deduct 190 USDT as TDS and deposit it against Sunil’s PAN.

Some Ambiguities About Tax On TDS On Cryptocurrency In India

TDS is applicable when an individual or entity makes a payment to an Indian resident individual or entity to purchase cryptocurrency. 

In India, TDS on cryptocurrency is applicable if the transaction value exceeds ₹50,000 (or ₹10,000 as appropriate) in a financial year. 

The TDS rate for cryptocurrency transactions is 1%, which means that 1% of the transaction value will be deducted as TDS, and the remaining balance will be paid to the recipient. The person deducting TDS is required to provide a certificate of TDS deduction to the recipient.

Profits sweet, but taxes sour?

Sweeten your crypto tax filing with an additional 30%off.

How KoinX Can Help?

Crypto taxation doesn’t always have to be exasperating; with KoinX, you can have detailed reports of your crypto taxes in minutes. Moreover, KoinX also presents its users with more than just crypto tax calculations. Here are some features which you can enjoy apart from crypto tax reports: 

    1. Accurate Preview Of Your Holdings: The platform helps you view all your crypto holdings on a single screen. You need to link all your accounts built on different DEXs and CEXs. You can identify the capital gains, losses, and tax liabilities. 
    2. Auto-Classification Of Transactions: KoinX auto-classifies each transaction based on the nature of its occurrence. So, if you have received a token through an Airdrop or received it as a staking reward, KoinX will handle the categorisation independently. This further helps to accurately calculate the crypto taxes as different transactions have different rates of taxation based on the jurisdiction. 
    3. Spam Token Filteration: You can also identify any spam tokens you may have received through airdrop or as hard forks. Such tokens don’t have any significant monetary value and can be churned out from your crypto holdings.
    4. Unlinking Your Inactive Accounts: Suppose you had 4 accounts on 4 different centralised exchanges. Of these, only 3 are active; hence, KoinX allows you to delete or deactivate the inactive account.

If you are looking for a platform to handle your crypto transactions and their taxes, KoinX is your best choice. So what’s stopping you? Join KoinX today and make your crypto taxes more effortless than ever. 

Conclusion

The 1% TDS on crypto in India brings a degree of regulatory oversight to the burgeoning cryptocurrency market. While this may initially appear as an added burden, it has the potential to legitimise crypto for broader adoption. The TDS aims to track transactions and curb potential tax evasion in the long run. However, this policy change might impact short-term crypto trading activity with increased trader costs. As the Indian crypto market evolves, it’s crucial to stay informed about regulatory updates to navigate this dynamic landscape.

CONTENTS