From July 1, you will have to pay 1 percent TDS (tax deducted at source) on transfer of a virtual digital asset (VDA), as per a new income-tax section, 194S, introduced in the Finance Act, 2022. The TDS is required to be made at the time the buyer makes the payment to the seller. In its previous circular, dated 22 June, the Central Board of Direct Taxes (CBDT) made it clear that onus of withholding TDS will be on the buyer, exchange or broker. Read more about it here.

Now, the CBDT has further clarified how TDS will be deducted in the case of peer-to-peer transactions.

The circular

This circular gives clarity on peer-to-peer transactions that happen outside exchanges where TDS will have to be deducted by the buyer before paying the consideration to the seller. In the case of transacting through exchanges, this onus was on the exchanges. The circular also gives clarity on payment of consideration in kind; the buyer needs to ensure that the TDS has been paid before releasing the consideration in kind or partly in kind or partly in cash.

While the circular will bring clarity, tax experts believe it will also increase the compliance burden for buyers. Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm, said, “The previous circular on VDAs did not deal comprehensively with the withholding obligations in case of peer-to-peer transactions. This circular clarifies the mechanism of deducting tax in such transactions in greater detail and provides more clarity. This shall increase the compliance burden for both buyers and sellers in transactions happening outside exchanges as unlike in the case of an exchange, where the exchange would take care of these compliances, here the buyer will have to do the compliances.”

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