TDS on Crypto in India effective 1 July. How it will work
First, it was 30% tax which is applicable from 1st April, and about to complete the first quarter of the financial year. Now TDS is another aspect that is going to make things difficult for a regular trader in the country and I believe that this will make a dent in the liquidity as well in exchanges. So what is this TDS is and how it going to impact the traders in India? Let's try to understand this post before I decided to write this post, I have gone through multiple articles to understand. I was trying to go through every aspect of TDS and the rules behind this and I am sharing it now in this post.
During the finance bill for this year, govt has introduced a new section called 194S, and it's part of the income tax act 1961. They have added a new clause for TDS which is known as Tax Deducted as Source and this is not an additional tax. This is a way to track the transactions and people will be able to claim it back during the tax filing after the end of the year. This TDS will be charged at 1% of the amount and it will remain the same all the time and there is no slab for this.
- TDS will not be deducted when a person buys crypto using INR (fiat currency) but the seller is liable to pay 1% TDS for that transaction and this will be deducted by the exchange so the seller is not required to do anything however seller will get 99% of the sold asset value.
- TDS is also applicable on p2p trades and TDS will be deducted once the order is placed however here also the buyer is not liable for TDS deduction.
- TDS is applicable in both types of transactions if sell our buy is done on crypto pair so this way there will be 2% deduction for buyer and seller both if one crypto is exchanged with another crypto. For example- if Bitcoin is sold for ETH and then again ETH is sold on USDT so in both the transactions TDS is applicable and even the buyer is liable for 1% TDS.
- Buy transaction is exempted only when this is performed with INR pairs.
- Since TDS will be implemented from 1 July so any transaction performed prior to this date is not liable for TDS.
So above are the major highlights and rules for the TDS and major action will be done by the exchanges if a transaction happens on their platform. This is going to affect the daily traders as they will lose their capital by 1% after each trade in INR and 2% if done in crypto pairs so after 50 or 100 transactions they will be left with less amount of money and this will be claimed back only after the year-end during the filing. Govt could have made the percentage as 0.001% something to track and this will also not affect much to the users trading daily but so far there has been no such update to reduce the percentage.
Let's wait and see how things will be in India in the crypto space once TDS is live and what impacts it brings to the exchanges and liquidity for trading.
Thank you so much
Stay Safe
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