Managing Tax Deducted at Source (TDS) for crypto in India feels like a puzzle. The lack of clear rules makes many investors feel lost. You may wonder if your crypto trades are even allowed or how to handle taxes on your earnings. The confusion grows as the government discusses regulating digital assets but avoids giving a clear answer on crypto legality.
While the Indian government does not fully recognise cryptocurrencies, it has still introduced taxes on them. Since the Union Budget 2022, a 30% tax on crypto profits and a 1% TDS on transactions have been in effect. These rules impact every investor, whether you’re a seasoned trader or a newcomer. Missing these obligations can lead to interests and penalties.
This guide will help you understand TDS filing for crypto in India. You’ll learn the key steps to comply with the rules and protect your investments. By knowing these basics, you can confidently navigate the complex world of crypto taxation.
What is TDS on Crypto in India?
TDS on crypto means a small tax is taken directly from a crypto disposal transaction. The government tracks these activities when you buy or sell crypto in India. To do this, they apply a 1% TDS on each transaction. This rule helps the government monitor crypto trades and ensure people pay their taxes.
How Does TDS Work for Crypto?
In India, if you buy crypto from a peer, you must deduct 1% TDS before making the payment. This deducted amount goes to the central government. If you use an Indian exchange, the exchange handles the TDS for you. They deduct 1% from the seller’s earnings and send it to the government to deposit the TDS against the seller’s PAN details. The seller then receives the remaining amount.
Key Points About TDS on Crypto
- From 1st July 2022, a 1% TDS applies to all crypto disposal transactions.
- TDS is deducted by the buyer or the exchange and sent to the government.
- For peer-to-peer (P2P) trades, the buyer handles TDS.
- No TDS applies if the total trade value in a year is less than INR 50,000.
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How is TDS in Crypto Transaction Calculated in India?
In India, the government treats all cryptocurrencies, tokens, and NFTs as Virtual Digital Assets (VDAs) under Section 2(47A) of the Income Tax Act. When trading these assets, the government mandates a 1% TDS deducted from each transaction. This rule came into effect after the 2022 Union Budget announcement. The purpose is to record crypto transactions and ensure tax compliance.
Calculating TDS for P2P Transactions
For peer-to-peer (P2P) transactions, the buyer must deduct 1% TDS from the payment made to the seller. After deducting this amount, the buyer must deposit it with the government and file the appropriate forms, such as 26QE or 26Q, based on the nature of the transaction. This process applies whether you’re trading cryptocurrencies or other digital assets directly with another person.
Calculating TDS on Exchanges
When you trade on Indian exchanges, the platform handles the TDS deduction. They will deduct 1% TDS from the seller’s proceeds and remit it to the government. However, if you use international or decentralised exchanges, you must handle TDS compliance yourself. You must deduct 1% from your payment and file it accordingly.
Special Case for Crypto-to-Crypto Trades
For crypto-to-crypto trades, the buyer and seller must deduct 1% TDS on the transaction. The 1% rate applies to both sides since each trade involves buying and selling transactions.
Exemptions for Small Transactions
If your total crypto transactions are less than INR 50,000 or INR 10,000 in a financial year, TDS does not apply. For transactions exceeding these amounts, the 1% TDS will be applicable.
TDS On Different Crypto Transactions
Here are different TDS rules on crypto transactions in India:
Buying Crypto with Indian Rupees
If you buy cryptocurrency using Indian Rupees (INR), you don’t need to worry about TDS. The government does not require any tax deduction when you purchase crypto directly with fiat currency like INR. This scenario is straightforward since you only spend cash to buy digital assets.
Selling Crypto for Indian Rupees
When you sell your cryptocurrency and receive INR in return, a 1% TDS will apply to the total value of the transaction. The TDS gets deducted from the amount you receive. If you sell INR 10,000 worth of Bitcoin, INR 100 will be deducted as TDS and deposited with the government.
Buying Crypto with Another Crypto
The TDS rules change if you buy one cryptocurrency and pay with another. A 1% TDS applies to the crypto you use to make the purchase. For example, if you use Ethereum to buy Bitcoin, you must pay 1% TDS based on the Ethereum value in INR. Both buyer and seller will need to manage this TDS deduction.
Exchanging One Crypto for Another
When you exchange one cryptocurrency for another, such as swapping Dogecoin for Ethereum, you must deduct 1% TDS from the crypto you sell. The TDS calculation is based on the INR value of the crypto you sell.
About The Crypto TDS Form
The Crypto TDS Form you need is Form 26QE. This form reports and deposits the tax deducted from cryptocurrency transactions. It ensures that the 1% TDS deducted from your crypto trades is properly submitted to the Central Government.
You must file this form within 30 days from the end of the month you made the deduction.
What is the Crypto TDS Refund Policy?
The TDS refund policy allows you to reclaim any excess TDS paid on your crypto transactions. You can apply for a refund if the TDS deducted from your trades exceeds your tax liability.
To get a refund, you must first calculate your total tax liability, including the 30% tax on gains and the 1% TDS. When you file your tax return, compare the TDS amount deducted with your total tax obligation. If the TDS amount is higher, you can claim the excess as a refund.
Make sure that you keep accurate records of all transactions and TDS payments. This documentation will support your refund claim and make the process smoother. You can recover any overpaid TDS efficiently by staying organised and filing correctly.
Penalty for Not Paying TDS on Crypto
Here is how you can be penalised for not paying TDS on Crypto transactions in India.
Failure to Deduct TDS
You face significant penalties if you don’t deduct TDS on crypto transactions when required. The Income Tax Act mandates that you deduct 1% TDS on crypto transactions. If you fail to do so, you must pay interest at 1% per month on the amount that should have been deducted, starting from the due date until the deduction is made. Additionally, you could be penalised an amount equivalent to the TDS that was not deducted.
Failure to Deposit TDS
Failing to deposit the deducted TDS with the government leads to severe consequences. You will incur interest at 1.5% per month, calculated from the deduction date until the deposit is made. Beyond this, you might face a monetary fine and even imprisonment ranging from 3 months to 7 years. These penalties reflect the seriousness of not meeting your TDS obligations.
Failure to File a TDS Return
You must also file a TDS return using forms 26Q or 26QE. If you miss this deadlinhttps://docs.google.com/document/d/1iLUbF96NZwMPE-oI_NzXu8YPteyKabpE84wTVOXdWAk/edit?tab=t.0e, you face a late fee of INR 200 per day, with a cap on the total TDS amount owed. The penalty for not filing can range from INR 10,000 to INR 1,00,000. Ensuring timely filing and payment helps you avoid these costly penalties and legal issues.
So be sure to stay on the right side of the crypto taxes and avoid making any crypto tax evasions in India.
Conclusion
Filing TDS for crypto transactions doesn’t have to be a daunting task. Understanding the basics can help you manage your tax obligations with ease. Remember, you need to deduct 1% TDS on your crypto trades and ensure timely payment to the government. Whether you’re using an Indian exchange or trading peer-to-peer, knowing who is responsible for TDS will save you from potential penalties.
