1% TDS To Be Charged On Cryptocurrency Transactions From July 1. Here's What It Means

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TDS deduction will be applicable to all virtual digital asset transfers including cryptocurrencies

After the 30 per cent tax rate introduced by the Government in the Union Budget 2022-23, cryptocurrency sale transactions are set to attract additional tax deducted at source (TDS) of 1 per cent from July 1 onwards. 

The TDS deduction will be applicable to all virtual digital asset (VDA) transfers including cryptocurrencies, and non-fungible tokens (NFTs) – worth over Rs 10,000. In the newly introduced clause 47 A of the Income Tax Act, VDA is defined as any information, code, number or token, except Indian or any other foreign currency, that is generated through cryptographic or other means. Non- Fungible or any other similar tokens are included in this definition. 

A TDS deduction of 1 per cent was announced by Finance Minister Nirmala Sitharaman in the Union Budget 2022-23. However, ambiguity over the rates arose after the income tax department website mentioned that the rate for virtual digital assets had been brought down to 0.1 per cent from the 1 per cent TDS on such assets. Clearing the air, the IT department on June 22, reiterated that TDS on virtual digital assets will remain at 1 per cent, as announced in the Union Budget.

The Central Board of Direct Taxes (CBDT) clarified that the onus of withholding the TDS lies with the person making the payment to the seller — a buyer, an exchange or a broker. This implied that the TDS needs to be deducted from the selling price and after deducting the TDS amount and the rest can be paid or transferred to the seller. 

In instances where the transaction of VDAs is carried out directly between the buyer and sellers without the involvement or exchange of a broker, the buying party