India issues clarifications on additional tax on cryptocurrencies

• India is set to levy a 1% TDS on crypto transactions, over and above the 30% tax it already levies.
• Exchanges will deduct the tax from buyers and deposit the same to the government within 30 days.
• The CBDT is set to issue an FAQ document to clear confusion around the tax.

The Central Board of Direct Taxes (CBDT) in India issued clarifications on the country’s decision to levy a 1% tax deduction at source (TDS) on cryptocurrencies yesterday. The rules, which kick in from July 1, have caused confusion in the industry about when to levy the tax and who will bear the expenses. The tax was announced shortly after the government announced a 30% tax on crypto transactions in February this year.

In an official order, the CBDT amended the Income Tax rules to specify how firms will comply and the reporting format for the same. According to the new rules, exchanges will have to deduct tax from the buyer of cryptos in a transaction under section 194S of India’s Income Tax act. These taxes must also be paid to the central government within 30 days from the end of the month in which the deduction was made.

Further, the rules also said that a TDS certificate would have to be issued to the payee within 15 days from the due date of reporting the tax to the government. These certificates are required by users who claim a refund on their taxes from the government.

In addition, the rules also stated that if the payment for the transfer of virtual digital assets is done in kind, payment of the TDS must also be ensured by adding to the total payment.

As mentioned before, the new rules come into effect from next month, but the CBDT is also expected to issue a separate set of guidelines — a frequently asked questions (FAQ) document — in order to remove the industry’s confusion on the other aspects of the new tax regime.

India’s levy of TDS on crypto transactions comes at a time when the global crypto industry is suffering a massive downturn. At the time of writing, Bitcoin was trading at around $20,000, a more than 70% drop from its all-time-high. The same is true for Ethereum and many other cryptocurrencies as well.

In such a time, the confusion around how the TDS will be levied and how it will hurt investors’ profit could lead to a lowering of trading volumes in the country, as reported by Mint last week.

India’s crypto taxes have been in the works for over a year. The 30% tax imposed on capital gains from virtual digital assets (VDAs) had affected the overall trading volumes in the country when they came into effect in April this year.

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