Understanding Section 194S: TDS on Transfer of Virtual Digital Assets (VDAs)

Introduction:

In the Budget 2022, the government introduced Section 194S to enforce TDS on the transfer of Virtual Digital Assets (VDAs), including cryptocurrency, NFTs (Non-Fungible Tokens), and other digital assets. This provision came into effect from July 1, 2022. Let’s delve into the essential requirements of this section.

What is a Virtual Digital Asset (VDA)?

As per Section 194S, a Virtual Digital Asset encompasses:

1. Cryptocurrency – information, code, number, or token generated through cryptographic means.
2. NFT – Non-Fungible Token or any token of similar nature.
3. Any other digital asset notified by the central government in the official gazette.

Who Deducts TDS under Section 194S?

Any person, whether a resident or non-resident, responsible for paying a sum to a resident as consideration for the transfer of VDA must deduct TDS under Section 194S.

When to Deduct TDS?

TDS is to be deducted at the time of crediting the sum to the resident’s account or at the time of payment, whichever is earlier.

Rate of TDS Deduction:

TDS is deducted at a rate of 1% on the consideration amount. The GST component is excluded from consideration for TDS purposes.

Non-Applicability of Section 194S:

1. Not applicable if the payee is a non-resident.
2. If the value or aggregate value of consideration does not exceed Rs. 10,000 during a financial year. The threshold for a specified person is Rs. 50,000.

Specified Person:

An individual or HUF without income from business or profession, or having income from business/profession with gross receipts not exceeding Rs. 1 Crore in business or Rs. 50 Lakh in the case of a profession in the previous financial year.

Consideration in Kind or Partly in Cash and Partly in Kind:

If the consideration is wholly in kind or partly in cash and partly in kind, the person responsible for payment must ensure that TDS has been paid before releasing the consideration.

Due Date for TDS Deposit:

The due date for depositing TDS is the 7th from the end of the month in which TDS was deducted.

Different Cases for TDS Deduction:

1. Transaction not in kind:

   • Through an exchange: Exchange deducts TDS.
   • Buyer is a broker: Broker deducts TDS.
   • Seller is a broker, and the transaction is through an exchange: Exchange deducts TDS.
   • Both broker and exchange involved: TDS by both or as per the agreement.

2. Transaction in kind:

   • Through an exchange: Both buyer and seller deduct TDS or as per the agreement.
   • Seller is a broker, and the transaction is through an exchange: Both broker and buyer deduct TDS or as per the agreement.

Other Points to Remember:

1. Section 194Q doesn’t apply if TDS is deducted under Section 194S.
2. For FY 2022-23, VDA transfers from April 1, 2022, to June 30, 2022, are considered for the threshold value.
3. Sections 203A and 206AB don’t apply to a specified person.