The Department of Income Tax has issued detailed disclosure requirements for TDS deductions for virtual digital assets, under which the date of transfer and method of payment will need to be specified.
From July 1, a withholding tax (TDS) of 1% will be levied on payments to virtual digital assets or cryptocurrencies in excess of Rs 10,000 per annum, as the Finance Law 2022 has introduces Section 194S into computer law.
In anticipation of the implementation of the new provision, the Central Commission for Direct Taxes (CBDT) notified on June 21 certain changes to the IT rules regarding the provision of TDS declarations on forms 26QE and 16E.
CBDT has notified that TDS collected under Section 194S must be deposited within 30 days of the end of the month in which the deduction was made. The deposit of the tax thus deducted must be made on form 26QE of contestation with declaration.
Nangia Andersen LLP’s partner, Neeraj Agarwala, said that to provide Form 26QE, specified individuals would be required to keep details such as date of transfer of virtual digital assets (VDAs), value of consideration, mode counterpart – in cash or in kind or in exchange for another ADV, etc.
“These forms comply with the recently introduced provisions of Section 194S. In accordance with these sections, the forms require detailed information.
“Specified individuals must be well equipped to understand and obtain the information required for compliance, as well as to maintain the appropriate documentation to support those transactions,” Agarwala said.
Amit Maheshwari, AKM’s Global Tax Partner, said that with only a few days left for new TDS provisions such as Sections 194R and 194S to come into play, there was more need to clarify procedural compliances. .
“Newer forms such as 26QE require detailed information for payments on the VDA transfer, such as the date of transfer from the VDA to the amount paid/credited either in cash or in kind, or in exchange for another VDA. 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 Department of Finance is also working on a FAQ on Cryptocurrency Taxation, which will provide nuanced clarification on the applicability of income tax to virtual digital assets.
Budget 2022-23 clarified the collection of income tax on crypto assets. From April 1, a TI of 30%, plus tax and surcharges, is levied on such transactions in the same way as it treats winnings from horse racing or other speculative transactions.
A TDS of 1% on payments above Rs. 10,000 to virtual currencies has also been introduced and will come into effect from July 1. The threshold limit for TDS would be Rs 50,000 per annum for specified persons, which includes individuals/HUFs who are required to have their accounts audited under the IT Act.