Guide to 1% TDS of Cryptos in India

July 1st, 2022 is just around the corner and we understand that you might be feeling a little uncertain about how taxation might affect your crypto holdings. The Finance Bill for 2022 has proposed to tax ‘digital assets’ as:

These are already set in motion but, the1 to 5 percent TDS on crypto transactions among the various will come into effect from July 1st FY 2022-23. No second-guessing this but the one that is going to pinch us all is the 1% to 5% TDS on crypto transactions. In case you are wondering why 5% TDS? Let us explain:

The 5% TDS Explainer

While the majority of us will fall in the 1% TDS bracket there is a small percentage of us who will have to pay 5% TDS as well. We would like to direct your attention to a new section in the Finance Bill, 2021 that allows for the higher rates of tax to be deducted and collected at the source when money is sent to a specific person who did not file an income tax return.

A new provision 206AB for TDS is added after section 206AA of the Income Tax Act. The latter stipulates higher TDS deduction rates for failure to provide a Permanent Account Number (PAN).

Any person who deducts TDS at a higher rate under the new section is prohibited from deducting TDS at a lower rate under any other provision of the Income Tax Act, according to the new section. This makes sure that people who don’t provide a PAN are exposed to increased TDS deduction rates.

The income tax act’s provision 206 CC is followed by section 206 CCA for TCS.

Let’s Understand Section 206AB and 206CCA

Payments or collections made to individuals who have not filed tax returns are liable to a deduction at source (TDS) at rates higher than those outlined in the Income Tax Act under Section 206AB.

In accordance with Section 206CCA, tax at source (TCS) must be collected on sums received from buyers at rates that are higher than those outlined in the Act.

The TCS is collected by deducting it from the proceeds of sale before depositing them into a bank account.

A higher amount of TDS must be deducted from some types of payments, such as contract payments, professional fees, and rent, as a result of a recent change to the Income-tax Act of 1961, which excludes the following types of payments:

  • Salary
  • Premature withdrawal of EPF
  • Any prizes from the lottery, cards, or crossword puzzles
  • Profit from investment in a securitisation trust
  • Winnings from any horse races
  • Cash withdrawals (Section 194N)


The 1% TDS Explainer

The government has come up with an amendment to the Income Tax Act and introduced a 1% TDS rate on investments in crypto assets. This is applicable to all crypto assets, subject to a certain threshold. As a result, you must subtract 1% TDS from the transaction value each time you sell a crypto asset (up to a specified threshold).

We are aware that many nations have outlined specific regulations for the taxation of crypto assets and designated them as an asset class. For instance, it is categorised as “property” in the United States while being taxed as “capital gains” in the United Kingdom.

The crypto markets have been buzzing with the recent news that India has officially recognized crypto assets by categorising them as “specified intangible assets” and making them taxable. Although there are specific problems concerning India’s proposed tax regime on virtual assets that need to be addressed, the government has made headway in establishing clarity in the recognition of crypto assets. Let’s decipher what they are:

Crypto-Related Transactions That Has Resulted in Losses

Losses made during the financial year in crypto investments cannot be carried forward or offset against other gains.

Reporting Crypto Transactions as Business Income

When crypto transactions are reported as business income, the implications of Goods and Services Tax (GST law) must also be considered. If you are in a GST zone, your GST status will need to be updated in order to take advantage of this tax break.

Classified as ‘Other Sources of Income’

Crypto asset income is now classified as ‘Other sources of income’ and must be reported on income tax returns (ITRs).

If Classified as Other Sources of Income

Crypto assets are classified as ‘other sources of income’ when ITR forms are completed. Though clarification from the IRS has not been received, it is critical to report the gains and pay taxes on them.

Wrapping It Up

According to the regulations, a 30% tax on your annual returns will be applied annually, at the end of each fiscal year, whereas a 1% TDS will be implemented on all sell orders and NFTs beginning July 1st. In accordance with government regulations, we are implementing the same on our ZebPay App.

TDS deductions made in respect of your transfers are specified in the ZebPay app. Click here to check our FAQs.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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