Nearly 3 months after the announcement of the crypto tax by the Indian government, the proposed 1% TDS on crypto transactions came into effect on July 1. A lot of investors have several concerns and confusion about the TDS on crypto in India. A 1% TDS on top 30% flat tax on income from crypto is certainly going to pinch us. But it is important to understand the deduction process to invest safely.
Understanding The 1% TDS On Crypto
The decision to impose 1% TDS on investments in crypto assets came from the finance ministry of India. As per the law, you must subtract 1% from the transaction value every time you sell a crypto asset. This means that investors will lose 1% of their capital on every trade. Notably, the law mentions ‘digital assets’ instead of cryptocurrency. This means the TDS will apply to cryptocurrencies like Bitcoin and Ethereum as well as assets like NFTs. Section 115BBH outlines the new taxes and TDS on digital assets in India. Here’s a breakdown of the section:
- Income from cryptocurrencies and other virtual digital assets to be taxed at 30%
- 1% TDS on transfer of digital assets
- No set-off or carry-forward of losses from crypto transactions
- Losses from trading one digital asset can not be set off by income from another digital asset.
There’s More To TDS On Crypto
While 1% is the standard TDS to be deducted on crypto transactions, for individuals who have not filed their income tax returns, 5% TDS will be deducted against the normal rate. Section 206AA of the Income Tax Act mentions higher TDS deduction rates for failure to provide a Permanent Account Number (PAN).
The TDS Will Not Be Deducted If:
As per the new income tax rules regarding crypto and virtual currency transactions, some investors will be exempted from the TDS deduction. The TDS will not be applicable if:
- The amount paid by the ‘specified person’ is equal to or less than Rs. 50,000 for the financial year.
- The amount paid by any other person except the ‘specified person’ is equal to or less than Rs. 10,000 for the financial year.
Who Is The ‘Specified Person’ Here?
Section 194S of the Income-Tax Act, 1961 talks about the definition of a ‘specified person’. According to the act, a ‘specified person’ is:
- An individual or Hindu Undivided Family (HUF) who does not have any income under the head ‘profits and gains of business or profession’ or
- An individual or Hindu Undivided Family (HUF) having income under the head ‘profits and gains of business or profession’.
In the latter case, the net turnover/receipts from business done by the individual/family must not exceed Rs.1 crore for the financial year. In the case of a profession, the turnover must not exceed Rs. 50 lakh in a financial year.