‘Buyer to deduct TDS on peer-to-peer VDA transactions’

NEW DELHI: The income tax department on Tuesday said both buyer and seller will have to withhold taxes for transactions involving an exchange of one virtual asset for another.

Issuing a further set of clarification, the Central Board of Direct Taxes (CBDT) also said according to section 194S of the I-T Act, the buyer will have to deduct tax in a peer-to-peer transaction of virtual digital assets (VDA).

"Thus, in a peer-to-peer (ie buyer to the seller without going through an Exchange) transaction, the buyer (ie person paying the consideration) is required to deduct tax under section 194S of the Act," the CBDT said.

With regard to liability to deduct tax at source under section 194S of the Act when the consideration is in kind or in exchange of VDA, the CBDT said in this situation, the person responsible for paying such consideration is required to ensure that the tax required to be deducted has been paid in respect of such consideration, before releasing the consideration. Giving an example, the CBDT said in a situation where VDA "A" is being exchanged with another VDA "B", both the persons are a buyer as well as a seller. One is the buyer for "A" and seller for "B" and another is the buyer for "B" and seller for "A".

"Thus both need to pay tax with respect to a transfer of VDA and show the evidence to other so that VDAs can then be exchanged. This would then be required to be reported in TDS statement along with challan number by both of them," the CBDT said.

Nangia Andersen LLP Partner Sandeep Jhunjhunwala said that where the consideration is partly in kind and the cash component is not sufficient to discharge the TDS liability, the CBDT has provided the buyer with leeway to ensure that the seller has discharged appropriate taxes before releasing the consideration.

"This comes as a relief for buyers who, sans this clarification, would have to bear the TDS cost without any recourse for recovery from the seller and also circumvents the seller from taking undue credit of such taxes disposed of by the buyer," Jhunjhunwala said.

Last week, the CBDT had clarified that in the case of VDA transactions happening through exchanges, the onus of deducting 1 per cent TDS would primarily be on the exchanges.

The TDS provisions on VDA or cryptocurrencies, announced in the 2022-23 Budget, will be effective from July 1. The 202223 Budget has brought clarity with regard to the levy of income tax on crypto assets. From April 1, a 30 per cent I-T plus cess and surcharges, is levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.