Last year during the Financial Budget of 2022, India introduced crypto taxation for the first time and brought all cryptocurrencies under the definition of virtual digital assets (VDAs). During the current budget, there was no changes about crypto but some new amendments were later discovered in the fine print. This primarily impacted the tax deducted at source (TDS) rules that affects VDAs.

Budget 2022

A tax rate of 30 percent and four percent cess was introduced in the budget of 2022. This was to be levied on profits made from cryptocurrency trading. Further, losses made on any particular cryptocurrency cannot be offset against profits made on other cryptocurrency. Though you could adjust the losses made on a particular cryptocurrency against the profits made on the same cryptocurrency.

Additionally, one percent TDS on cryptocurrency was brought in under section 194S of the Income Tax Act which is to be levied on crypto transactions above Rs10,000. These all changes were brought in Last year's Budget i.e. Year 2022. 

Budget 2023

In the current year Budget, the Finance Bill brought an amendment in the Income Tax Act under section 271C, which will penalise Non-Payment of TDS on virtual digital assets. This penalty would be an amount equal to the unpaid TDS, which will be imposed by a joint commissioner, or a jail term for up to six months. In case of a delay in payment, this could amount to an interest rate of 15 percent per annum for late payment.

In short, we call it "Crypto TDS Penalty"

- Penalty equal to TDS amount.

- Jail up to 6 Months.

- And in case of a delay, interest rate of 15 percent per annum towards late payment.

Pretty harsh if you ask us...but knowing TDS rules across different segments (other than Crypto) this does not surprise us. The whole concept of TDS was introduced with sole aim to collect tax from the very source of income (& as income tracking mechanism ;-) ). The Government assumes that you (the deductor) has deducted the tax at the very source of income and expects you to deposit the TDS into Government coffers as soon as possible. Any delay in depositing the same to Government coffers and you end up paying Interest, Penalty etc.

International Crypto Exchanges and P2P platforms (including Binance P2P)

 

Many P2P traders think that they TDS is not applicable in International Crypto Exchanges and P2P platforms (including Binance P2P) which is WRONG. This type of incorrect information is being spread primarily by Instagram and YouTube influencers who are paddling incorrect details to the general public.

 

Section 194S requires a person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA) / Crypto / Crypto Currency / USDT / etc, to deduct an amount equal to 1% of such sum as income tax thereon. VDA covers all cryptocurrencies such as USDT, Bitcoin, Ethereum, BNB, Shibu Inu, Solana, and Dogecoin, etc that are being traded on P2P (Peer-to-Peer) Platforms.

 

According to the this new section, it requires the person who is paying the consideration to deduct tax. Following are the scenarios in which TDS will be deducted:

• • P2P (Peer-to-Peer) transactions between buyer and seller where crypto exchange platform simply acts as a platform, TDS will be deducted by BUYER on behalf of the seller, since the consideration is paid directly by the buyer to the seller.

• • In case where the consideration is paid by buyer to the exchange and exchange pays to the seller, then:
    • If seller is the owner of the Crypto then exchange will deduct TDS of the seller and
    • If exchange is the owner of the Crypto, then the exchange may enter into written agreement with the buyer that the exchange will pay the tax and in such a case the exchange is required to show all the transactions in his income tax return.

Moreover, according to the new tax laws proposed in BUDGET 2023, one may attract a penalty under Section 271C of the Income Tax Act if trying to avoid TDS by using offshore or non-compliant platforms.

Moreover, failure to pay TDS on crypto transactions can land one in jail for up to seven years, as per Clause 119 of Finance Bill, 2023 on Page 91.

 

Conclusion: 

With introduction of Crypto TDS penalty in Budget 2023, all crypto traders need to take the TDS deductions and its timely payments very seriously. This includes those who are trading on international crypto exchanges and P2P platforms (such as Binance P2P) otherwise it can lead to hefty interest & penalty and maybe even JAIL sentence.

DISCLAIMER

The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA. Please note the all consultations with the CA are Paid consultations. Financial Year 2024.