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Crypto taxation: Buyer to deduct TDS on peer-to-peer virtual digital asset transactions

Giving an example, the CBDT said in a situation where VDA "A" is being exchanged with another VDA "B", both the persons are a buyer as well as a seller. One is the buyer for "A" and seller for "B" and another is the buyer for "B" and seller for "A".

ET Now Digital

Updated Jun 28, 2022, 21:17 IST

Photo : BCCL

The income tax department on Tuesday clarified that the buyer will have to deduct tax at the rate of 1 percent in a peer-to-peer transaction of virtual digital assets (VDA), while both buyer and seller will have to withhold taxes for transactions involving an exchange of one virtual asset for another.

"Thus, in a peer-to-peer (i.e. buyer to the seller without going through an Exchange) transaction, the buyer (i.e. person paying the consideration) is required to deduct tax under section 194S of the Act," the Central Board of Direct Taxes said Issuing a further set of clarification.

With regard to liability to deduct tax at source under section 194S of the Act when the consideration is in kind or in exchange of VDA, the CBDT said in this situation, the person responsible for paying such consideration is required to ensure that the tax required to be deducted has been paid in respect of such consideration, before releasing the consideration.

"Thus both need to pay tax with respect to a transfer of VDA and show the evidence to other so that VDAs can then be exchanged. This would then be required to be reported in TDS statement along with challan number by both of them," the CBDT said.

Nangia Andersen LLP Partner Sandeep Jhunjhunwala said that where the consideration is partly in kind and the cash component is not sufficient to discharge the TDS liability, the CBDT has provided the buyer with leeway to ensure that the seller has discharged appropriate taxes before releasing the consideration.

"This comes as a relief for buyers who, sans this clarification, would have to bear the TDS cost without any recourse for recovery from the seller and also circumvents the seller from taking undue credit of such taxes disposed of by the buyer," Jhunjhunwala said.

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