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CBDT Issues further Guidelines for TDS on Virtual Digital Asset under section 194S

cbdt-issues-further-guidelines-tds-on-virtual-digital-asset-section-194s

CBDT Issues further Guidelines for TDS on Virtual Digital Asset under section 194S: CBDT has further issued guidelines in respect of TDS on payment for the transfer of virtual digital assets (VDAs) under section 194S of the Income-tax Act, 1961 (‘Act’) by a Circular No. 14/2022 dated 28th June 2022.


Earlier, on 22nd June 2022, vide Circular No. 13/2022, CBDT had issued detailed guidelines for removing difficulties for deduction of tax (TDS) on virtual digital assets (VDAs) as per the provision of section 194S.



Earlier Circular on 194S provided guidelines for transactions conducted on or through an Exchange. No detailed guidelines were provided for all other transactions, that is, transactions not carried on or through an Exchange.


This circular is issued to provide guidelines for the transactions not covered by Circular No. 13 of 2022. This also reiterates that if tax is deducted on VDAs under section 194S, then no tax is required to be deducted under section 194Q of the Act.


Section 194S mandates deduction of tax @ 1% on payment of consideration in cash or in-kind on the transfer of VDAs.


Finance Act, 2022 has provided to levy income tax on virtual digital asset transactions and thus in order to capture the details of the transactions, section 194S is inserted into the Act to provide for deduction of tax on the transfer of virtual digital asset.


In order to widen the tax base from the transactions so carried out in relation to these VDA assets, section 194S is inserted in the Act to provide for deduction of tax on payment for transfer of virtual digital asset to a resident at the rate of 1% of such sum. However, in case the payment for such transfer is–


(i) wholly in kind or in exchange of another virtual digital asset where there is no part in cash; or


(ii) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person before making the payment shall ensure that the tax has been paid in respect of such consideration.


In case of specified persons, the provisions of section 203A (requirement to obtain TAN) and 206AB (higher rate of TDS in case of non-filer of return of income) will not be applicable


Further, no tax is to be deducted in case the payer is the specified person and the value or the aggregate of such value of consideration to a resident is less than Rs. 50,000 during the financial year. In any other case, the said limit is Rs. 10,000 during the financial year.


It is also provided that if tax has been deducted under section 194S, then no tax is required to be collected or deducted in respect of the said transaction under any other provision of Chapter XVII of the Act.


It also empowers the Board to issue guidelines, with the prior approval of the Central Government, to remove any difficulty arising in giving effect to the provisions of the said section and every such guideline issued by the Board shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person responsible for paying the consideration on transfer of such virtual digital assets.


For the purposes of this section, it is provided that ‘specified person’ means a person:–


(i) being an individual or Hindu undivided family whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred; 


(ii) being an individual or Hindu undivided family having income under any head other than the head ‘Profits and gains of business or profession’. 


Read the full text of CBDT Circular No. 14/2022 dated 28.06.2022 on Guidelines for TDS on  Virtual Digital Asset under section 194S


Circular no. 14 of 2022


F. No. 370142/29/2022-TPL (Part 1) 

Government of India 

Ministry of Finance 

Department of Revenue 

Central Board of Direct Taxes 

(TPL Division) 

*****


New Delhi, dated 28th June, 2022


Subject: Order under section 119 of the Income-tax Act, 1961 (the Act) in relation to tax deduction at source under section 194S of the Act for transactions other than those taking place on or through an Exchange


Finance Act, 2022 inserted a new section 194S in the Act with effect from 1st July 2022. The new section mandates a person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as income tax thereon. The tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier.


This deduction is not required to be made in the following cases:-


(i) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or


(ii) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.


The following are defined as “specified person” for the purposes of this provision:


(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.


Sub-section (6) of section 194S of the Act authorises Central Board of Direct Taxes (CBDT) to issue guidelines, for removal of difficulties, with the approval of the Central Government. Accordingly, in exercise of the power conferred by sub-section (6) of section 194S of the Act, CBDT has issued guidelines in the form of Circular No. 13 of 2022 dated 22.06.2022 for transactions conducted on or through an Exchange. For all other transactions only the clarification provided in answer to question no 6 of that circular is applicable. The term “Exchange” has been defined to mean any person that operates an application or platform for transferring of VDAs, which matches buy and sell trades and executes the same on its application or platform. Same definition applies to this circular.


For all other transactions (not covered by circular no 13/2022), this circular is being issued under section 119 for proper administration of the Act.


1) Liability to deduct tax at source under section 194S of the Act when the consideration is other than in kind


According to section 194S of the Act, any person who is responsible for paying to any resident any sum by way of consideration for transfer of VDA is required to deduct tax. Thus, in a peer to peer (i.e. buyer to 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 tax so deducted is required to be deposited with Government in accordance with the time and procedure prescribed in the Act read with the relevant provisions of the Income-tax Rules, 1962.


After deduction, the deductor is required to furnish a quarterly statement (in Form No. 26Q) for all such transactions of the quarter on or before the due date prescribed in the Income-tax Rules, 1962. For specified person Form 26QE has been introduced.


It may be clarified that the TDS shall be on consideration for transfer of VDA less GST.


2) Liability to deduct tax at source under section 194S of the Act when the consideration is in kind or in exchange of VDA


According to the proviso to sub-section (1) of section 194S of the Act, there could be a situation where the consideration is in kind or in exchange of another VDA or partly in kind and cash is not sufficient to meet the TDS liability. In this situation, the person responsible for paying such consideration is required to ensure that tax required to be deducted has been paid in respect of such consideration, before releasing the consideration.


Thus, the buyer will release the consideration in kind after seller provides proof of payment of such tax (e.g. challan details etc.). In a situation where VDA “A” is being exchanged with another VDA “B”, both the persons are buyer as well as seller. One is buyer for “A” and seller for “B” and another is buyer for “B” and seller for “A”. Thus both need to pay tax with respect to 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. This year Form 26Q has included provisions for reporting such transactions. For specified persons, Form 26QE has been introduced.


3. Interplay between provision of section 194S and section 194Q


Without going into the merit whether VDA is goods or not, it is clarified that once tax is deducted under section 194S of the Act, tax would not be required to be deducted under section 194Q of the Act.


Ankit Jain 

Under Secretary (TPL)-III


Download CBDT Circular No. 14/2022 dated 28.06.2022 on Guidelines for TDS on  Virtual Digital Asset under section 194S in PDF format

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