This blog post simplifies the key points of Section 194S of the Income Tax Act, which introduced Tax Deducted at Source (TDS) on Virtual Digital Assets (VDAs) in India.

What is Section 194S?

Introduced in July 2022, Section 194S mandates a 1% TDS deduction on VDA transactions exceeding a specific threshold. This is a step towards regulating the digital asset market and tracking such transactions.

Who is Required to Deduct TDS?

– Generally, the buyer is responsible for deducting TDS on the consideration value (purchase price) of VDAs.
– However, when transactions occur through an exchange, the exchange itself might be responsible for deducting TDS on behalf of the buyer, especially for smaller buyers.

Threshold Limits for TDS Deduction:

– Specified persons (individuals/Hindu Undivided Families with specific income thresholds) have a higher threshold of ₹50,000 per financial year.
– Non-specified persons have a lower threshold of ₹10,000 per financial year.

What are VDAs?

VDAs encompass a wide range of digital assets, including:

– Cryptocurrencies (Bitcoin, Ethereum, etc.)
– Non-Fungible Tokens (NFTs)

Key Points to Remember:

– TDS applies to the net consideration value, excluding GST.
– Payment gateways are not required to deduct TDS if the buyer has already done so.
– The threshold limit for TDS applicability is considered for the entire financial year (from April 1st) even though the section came into effect in July 2022.

Conclusion:

Section 194S aims to bring transparency and taxation to VDA transactions. The government primarily focuses on exchanges to ensure compliance with TDS regulations.