Income Tax on Virtual Digital Assets: CBDT issues Guidelines on 1% TDS from 1st July [Read Circular]

Income Tax - Virtual Digital Assets - CBDT - Guidelines - TDS - Taxscan

In a move to levy one percent TDS on the virtual digital assets under section 194S of the Income Tax Act, 1961, the Central Board of Direct Taxes (CBDT) has issued guidelines applicable with effect from 1st July 2022.

The circular issued on Wednesday prescribes the guidelines for the removal of difficulties under sub-section (6) of section 194S of the Income-tax Act, 1961

Finance Act 2022 inserted a new section 194S in the Income-tax Act, 1961 with effect from 1st July 2022. The new section mandates a person, who is responsible for paying to any resident any sum by way of consideration for the transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as income tax thereon. The tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier.

“According to section 194S of the Act, any person who is responsible for paying to any resident any sum by way of consideration for transfer of VDA is required to deduct tax. Thus, in a peer-to-peer (i.e. direct buyer to seller) transaction, the buyer (i.e person paying the consideration) is required to deduct tax under section 194S of the Act,” the circular said.

Since the provision of section 194S of the Act applies at the time of credit or payment (whichever is earlier) of any sum, representing consideration for transfer of VDA, such sum which has been credited or paid before 1st July 2022 would not be subjected to tax deduction under section 194S of the Act.

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