Section 194S - TDS on Crypto currency and NFT

Section 194S of Income Tax Act - TDS on transfer of virtual Digital Assets (Crypto currency and NFT) has effective from 1st July 2022 to deduct TDS while making payment for transfer of any virtual digital asset.

Along with section 115BBH, which talks about a 30% flat tax rate on transfer of any virtual digital Assets, Section 194S will also apply to deduct TDS while making payment for transfer of any virtual digital asset.

We have explained all in detail about the provision of section 194S of Income Tax Act.

 

What is section 194S of income tax act 1961?

Section 194S is a TDS section which provides us the provision for deducting TDS when any transaction happens or transferring a virtual digital Asset (Like Crypto currency and NFT).

Speculation in crypto currency is increasing day by day. So, the Government has introduced a section 115 BBH according to which a 30% flat rate is applied when any virtual digital asset is transferred.

Along with section 115BBH, a TDS section 194S will also apply according to which you have to deduct TDS on such transactions.

So, if you are transferring any virtual digital asset then the payer on payment of consideration for receiving virtual Digital Asset has to deduct TDS under section 194S before making such payment and deposit the same to the Government.

 

What are Fungible Token and Non Fungible Token under Virtual Digital Asset?

Virtual Digital Asset consists of Fungible Token (like crypto currency) and Non fungible Token (like NFT’s).

 

Who is required to deduct TDS under section 194S of Income Tax Act?

On transferring of any virtual digital asset, payer (who is receiving virtual digital asset) should deduct TDS before making consideration (payment) to payee. It is important to note that the payee (who is transferring virtual digital assets) must be a resident as per section 194S.

 

What is the rate of TDS under section 194S and when to deduct?

As per section 194S the rate of TDS is 1%. So, while making payment for the transfer of virtual digital assets to residents, the payer should deduct TDS at the rate of 1% and deposit the same to the Government. 

However, in case payer making payment for transfer which consists:-

• Payment wholly in kind or in exchange of another virtual digital asset (means no payment in cash)

OR

• Payment made partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of TDS in respect of the whole such transfer then the person before making the payment should ensure that the TDS has been paid for whole consideration.

Example

Virtual digital assets are transferred for Rs.100000 (Rs. 40000 in kind and Rs. 60000 in cash). So TDS should be deduct on whole amount Rs. 100000*1% = Rs.1000.

And the payer should make cash payment of Rs.60000 to payee after deducting TDS of Rs. of 1000 i.e. Rs.59000.

 

What is the threshold limit for deducting TDS under section 194S?

As per section 194S no TDS will be deducted if the payer (who is making payment of consideration for receiving virtual digital asset):-

• Is a specified person and the value of consideration payment to a resident is less than Rs. 50000 during the financial year.
• Is not a specified person and the value of consideration payment to a resident is less than Rs. 10000 during the financial year.

It means TDS to be deducted when payment is Rs. 50000 or more (in case of specified person) and Rs. 10000 or more (in case of non-specified person) during the financial year.

 

Who is the specified person for the provision of section 194S?

Specified persons means:-

1) Individual/ HUF

• Whose Turnover from business does not exceed Rs. 1 crore

Or

• Turnover from profession does not exceed Rs. 50 lakh

during the financial year immediately preceding the financial year in which virtual digital assets are transferred.

2) Individual / HUF who is having income under any other head other than head ‘Profits and gains of business or profession’.

 

Other Important Points

Other important points to be noted for Section 194S:-

• If the payer is specified person then provision of section 203A ( i.e. requirement to obtain TAN) and section 206AB  (i.e. TDS at higher rate for non-filers of ITR) will not be applicable.
• If TDS has been deducted in section 194S then no TDS is to be collected or deducted in any other provisions of the act for the same transaction.
• If transaction, both section 194O (i.e. TDS on payment made to e-Commerce participants) and section 194S are applicable then TDS should be deducted under section 194S and not in section 194O.
• If any amount paid for transfer of virtual digital assets is credited to the suspense account or by any other name of account, then section 194S provisions also apply to the amount.

 

Summary

Section 194S of Income Tax Act is a TDS section according to which 1% TDS is deducted on transfer of any virtual digital assets like Crypto currency and NFT.