TDS under Section 194S

Payment on Transfer of Virtual Digital Asset:

The section provides that a person being resident or non-resident, responsible for providing to a resident, any sum by the way consideration for transfer of virtual digital asset shall at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier deduct tax @ 1% on it. Since the provision of section 194S applies at the time of credit or payment whichever is earlier, representing consideration for transfer of virtual digital assets, such sum which has been credited or paid before 01.07.2022 would not be subjected to tax deduct u/s 194S.

Payment gateway will not be required to deduct TDS u/s 194S, if transfer of virtual digital assets and against this payment made through online/digital platform then TDS u/s 194S applicable only of transfer on digital virtual assets.

This Section is not applied on:

1. The consideration is payable by Individual or HUF who does not have any income from PGBP.
2. The consideration is payable by Individual or HUF whose turnover from business is up to Rs. One crore and in case of profession the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year.
3. The consideration is payable by any person “other than a specified person” i.e Individual and HUF and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.

In respect of new section 194S: –

• The sale and purchase of cryptocurrencies usually takes place at the crypto exchanges, just like a stock exchange, where the identity of the buyer and seller is not revealed. So, in such cases, how it will be possible for the buyer to deduct TDS in the name of the seller of such virtual digital asset? In such cases, whether the crypto exchanges will be required to deduct the TDS?
• The current definition of ‘Virtual Digital Asset’ in the newly proposed section 2(47A) in the Income Tax Act, excludes ‘foreign currency’ from its ambit. The most commonly used cryptocurrency, ‘Bitcoin’ has been recognized as ‘legal tender’ in the country El Salvador, w.e.f. 1.9.2021 (as per the Wikipedia), and as such, it is amenable to be considered as a ‘foreign currency’. So, the currently proposed definition of ‘virtual digital asset’ in section 2(47A), will exclude ‘Bitcoin’ from its ambit, which will defeat the very purpose and objective of bringing about this amendment.