What is Section 194S?
Section 194S is a provision introduced in the Indian Income Tax Act, 1961, aiming to regulate ) deduction of tax at source (TDS) by any person who is responsible for paying consideration to a resident person in respect of the transfer of virtual digital assets (VDAs).
To keep track of VDAs and cryptocurrency transactions, the government of India, with effect from July 1st, 2022, has put a rule in place. If you transfer a VDA and its total value goes beyond INR 10,000 (or INR 50,000 in case of a specified person) in a year, 1% of the amount will be deducted as TDS.
The Budget also introduced another rule for cryptocurrency, NFT, and VDA. If you're involved in these transactions, you'll have to pay a 30% tax under Section 115BBH. People who trade cryptocurrency cannot take deduction for any expenses, cannot set of the losses , and also, you don’t get the benefit of Chapter VI-A deductions against this income.
What is a Virtual Digital Asset? (VDA)
TDS must be taken out according to Section 194S when transferring a VDA, which stands for Virtual Digital Asset. VDA includes the following:
● Cryptocurrency – Data, code, number, or token created through cryptography or other methods
● NFT – Non-Fungible Token or any similar kind of token
● Any other digital asset announced by the central government in the official gazette
TDS in case of a specified person
A specified person as defined under this section is:
a. Individual or HUF who does not have income under business and profession or
b. Individual or HUF having business income up to INR 1 crore or having professional receipts upto INR 50 lakhs.
In the above cases, limit of INR 50,000 shall apply, In all other cases, limit of INR 10,000 shall apply.
Who will deduct TDS on Cryptocurrency?
The person responsible for making the payment for buying the cryptocurrency or other VDAs should subtract 1% as TDS according to Section 194S if the total transfer sum for the fiscal year goes over INR 10,000. Yet, if the payer is a specific person according to Section 194S, they must subtract TDS if the overall transfer sum for the fiscal year surpasses INR 50,000.
Here at JJ Tax, we've peeled back the layers of Section 194S to provide you with a clear picture of its significance. This provision, meticulously designed, spotlights the intricate world of virtual asset transfers.
As we wrap up this newsletter, it's essential to remember that knowledge is your key to seamless financial transactions. Regardless of whether you're a business entity, a freelancer, a professional, or an individual, Section 194S holds importance for all.
Should you have any queries, concerns, or require further elucidation on Section 194S or any other tax-related matters, rest assured that our expert team at JJ Tax is at your service. A quick email or a phone call is all it takes to connect with us. We're dedicated to guiding you through the intricacies, ensuring that your financial journey remains compliant and hassle-free.