SECTION 194S : TDS ON Virtual Digital Assets

SECTION 194S: TDS ON VDA

1.What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: –

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2. What is TDS under Section 194S of Income Tax Act?

Section 194S of Income Tax Act, 1961 mandates the deduction of tax at source (TDS) on payments made for the transfer of virtual digital assets, including cryptocurrencies.

3.What is a Virtual Digital Asset?

Virtual Digital Assets means: –

• Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise and can be transferred, stored, or traded electronically.

• A non-fungible token (NFT) or any other token of similar nature

• Any other digital asset as the Central Government may notify.

4.When is TDS to be deducted under Section 194S?

TDS is required to be deducted: –

• At the time of payment.

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: –

S.no	Date of Payment	Date of crediting the party in books of accounts	Date of TDS deduction
1.	30/04/2024	30/04/2024	30/04/2024
2.	30/04/2024	01/05/2024	30/04/2024
3.	01/05/2024	30/04/2024	30/04/2024
4.	01/05/2026	30/04/2024	30/04/2024

5.Who is required to deducts TDS under Section 194S?

When specified person’s payment for transfer (purchase) of virtual digital assets (VDA) exceeds Rs. 50,000 during the Financial Year or Rs 10,000 in any other situation then TDS under Section 194S of Income Tax Act becomes applicable.

Example: –

Mr. Chaman has sold his Bitcoin worth Rs. 2 lakhs through coindcx to Mr. Narayan. Discuss the TDS implications?

Section 194S of the Income Tax Act, states that TDS liability arises under this section when the transfer value increases Rs. 50,000 in a Financial Year in case of specified person or Rs 10,000 in case of others.

If the exchange is done through an exchange, then TDS liability arises on the exchange itself rather than the person who buys the cryptocurrency.

In the give case since the transaction is done through coindcx exchange so coindcx is liable to deduct TDS @ 1% i.e. Rs. 2,000 (2,00,000*1%).

6.Rate of TDS under Section 194S?

The TDS rate under this Section is: –

Sl no.

Nature of payment

TDS if pan is available

TDS if pan not available

Amount paid of virtual digital assets

20%

Note: –

The provision of this Section i.e. 194S is applicable from 01/07/2022.

7.Exemption under Section 194S?

No TDS if: –

• Payment is upto Rs. 50,000 in a Financial Year in case of specified persons.

• Payment is upto Rs. 10,000 in a Financial Year in case of other than specified persons.

8.Who is a specified person?

A Specified person means: –

• Individuals or HUFs who do not have any income from business or profession.

• Individuals or HUFs having turnover upto Rs. 1crore.

• Individuals or HUFs having gross receipts upto Rs. 50 Lakhs.

9.Transfer of Virtual Digital Asset (VDA) through exchange?

Transfer of VDA (in cash)

If the transfer of VDA takes place on or through exchange (who does not own VDA), then the exchange shall deduct TDS @ 1% and remit the remaining amount.

In the case the exchange would be required to furnish a quarterly report in form 26QF on or before due date.

Transfer of VDA (in kind) (one VDA sold for another VDA)

Unlike the above cases, the payments could be in kind. In such cases, the exchange may deduct TDS on both legs of transaction through following method: –

• The exchange shall maintain records for every VDA-to-VDA trade.

• The exchange shall convert this tax withheld in kind into one of the primary VDA that can be easily converted into INR.

• All the TDS in the form of primary VDA will be accumulated for the day. Time limit will be from 00:00 hours to 23:59 hours. VDA accumulated by the exchange shall be verifiable from the trail of orders for VDA- to-VDA trades executed during the day.

• The accumulated balance of primary VDAs at 00:00 hours will be converted into INR based on market rates existing at that time.

• The exchange needs to email the customer a contract note that includes TDS on VDA withheld in kind and its INR value upon conversion.

10.Time limit for deposit of TDS under Section 194S?

The due date for deposit of TDS is as below: –

Month	Due Date
April	On or before 7^th May.
May	On or before 7^th June.
June	On or before 7^th July.
July	On or before 7^th August.
August	On or before 7^th September.
September	On or before 7^th October.
October	On or before 7^th November.
November	On or before 7^th December.
December	On or before 7^th January.
January	On or before 7^th February.
February	On or before 7^th March.
March	On or before 30^th April.

11.What is the due date for filing of TDS return under Section 194S?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: –

Quarter	Period	Due date (TDS filing)
1^St quarter	April-June	31^st July.
2^nd quarter	July-September	31^st October.
3^rd quarter	October- December	31^st January.
4^th quarter	January- March	31^st May.

12.Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26QF/26QE and the deductor has to issue FORM 16A to the employee after filing of return.

13.Fees/ Penalties for Late/ Non- Filing of TDS u/s 194S?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

Particulars	Penalty
TDS not deducted on time.	1% per month or part of month.
TDS deducted but not deposited before due date	1.5% per month or part of month.
TDS return not file on or before due date	200 per day maximum till TDS amount.

14.FREQUENTLY ASKED QUESTIONS?

Q. What is the threshold limit for TDS under 194S?

A. The threshold limit for TDS under 194S is Rs. 50,000 in case of specified person and Rs. 10,000 in case of others.

Q. Is Section 194S applicable when the payee is a non-resident?

A. YES, this section also applies when the transferor of VDA is non-recipient.

Q. From which date TDS is applicable in accordance with the provision of Section 194S?

A. From 01/07/2022, the provision of Section 194S will be applicable.

Q. Are specified persons required to obtain TAN?

A. NO specified persons are not required to obtain TAN they can use their PAN to deposit TDS by filing for 26QE.

FEW IMPORTANT POINTS

1.TDS applicable on consideration excluding GST & Commission.

2.In transaction payment made using payment gateway the payment gateway not required to deduct TDS u/s 194S.

3.Section 194Q not applicable when TDS deducted u/s 194S.

4.If the transaction took place outside of the exchange then buyer required to deduct TDS of seller.

Nayan Saluja & Company

SECTION 194S : TDS ON Virtual Digital Assets

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