TDS on Crypto
TDS on crypto refers to the 1% Tax Deducted at Source that was introduced in the Union Budget 2022 on the transfer of Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs, in India. This TDS is deducted by exchanges or buyers on qualifying transactions and remitted to the government.
What Is TDS on Crypto?
Section 194S of the Income Tax Act, effective from July 1, 2022, requires that a 1% TDS be deducted when a VDA is transferred for consideration exceeding Rs 50,000 in a financial year (Rs 10,000 in the case of specified persons like individuals whose turnover is under Rs 1 crore or professionals with gross receipts under Rs 50 lakh).
The payer (buyer or exchange on behalf of buyer) deducts TDS and deposits it with the government.
Who Deducts TDS on Crypto?
– **Recognised exchanges**: exchanges like CoinDCX, WazirX, ZebPay deduct TDS on their platform on every qualifying trade
– **Peer-to-peer transactions**: the buyer is responsible for deducting and depositing TDS
– **Non-exchange transfers**: the person paying consideration must deduct 1% and deposit by the 7th of the following month
How TDS Works on Exchanges
When you sell Rs 1 lakh of Bitcoin on a registered crypto exchange:
– Exchange deducts 1% = Rs 1,000 as TDS
– You receive Rs 99,000 in your exchange wallet
– The exchange deposits Rs 1,000 with the Income Tax Department on your behalf
– The TDS is reflected in your Form 26AS and can be claimed as credit against your final tax liability
Impact on Traders
TDS caused a significant reduction in Indian crypto trading volumes after July 2022. For frequent traders, 1% deducted on every transaction creates a cash flow problem, as TDS can be reclaimed only at year-end through tax filing.
Practical Example
Arjun buys BTC worth Rs 2 lakh on CoinDCX. Later, he sells it for Rs 2.5 lakh. The exchange deducts 1% TDS on Rs 2.5 lakh = Rs 2,500. Arjun receives Rs 2,47,500. His actual gain of Rs 50,000 is taxed at 30% = Rs 15,000. When he files his ITR, the Rs 2,500 TDS is credited against his total tax liability.
Key Takeaways
– 1% TDS applies on VDA transfers (crypto, NFTs) under Section 194S from July 1, 2022
– Threshold: Rs 50,000 per year (Rs 10,000 for specified persons)
– Recognised exchanges handle TDS on platform trades; P2P buyers must deduct TDS themselves
– TDS is not the final tax; it is credited against 30% tax liability when filing the annual ITR
– High TDS frequency significantly impacted trading volumes on Indian exchanges in 2022-23
