The income tax department has come out with detailed disclosure requirements for TDS deductions for virtual digital assets, under which date of transfer and mode of payment will have to be specified.
From 1st July, tax deducted at source (TDS) of 1% will be levied on payments towards virtual digital assets or cryptocurrencies beyond Rs 10,000 in a year, as the Finance Act 2022 has introduced Section 194S in the I-T Act.
In the run up to implementation of the new provision, the Central Board of Direct Taxes (CBDT) on 21st June notified certain amendments in I-T Rules with respect to furnishing TDS returns in Form 26QE and Form 16E.
CBDT has notified that the TDS collected under Section 194S shall be deposited within 30 days from the end of the month in which the deduction has been made. Deposit of tax so deducted shall be made in the challan-cumstatement Form 26QE.
Tax experts say that in order to furnish Form 26QE, the specified persons would be required to maintain details like date of transfer of virtual digital assets (VDAs), value of consideration, mode of consideration -- whether cash or kind or in exchange of another VDA etc.
These forms are in line with the recently introduced provisions of Section 194S. Complying with these sections, the forms require detailed disclosures. "The specified persons should be well-equipped to understand and obtain the information required for compliance, as well as maintain the appropriate documentation to support these transactions.
The new forms such as 26QE require detailed information for payments on transfer of VDAs such as the date of transfer of VDA to amount paid/ credited either in cash or kind or in exchange of another VDA. This will help the tax department to trace the VDA transactions. But it will also increase the compliance burden on taxpayers.
The finance ministry is also working on an FAQ on taxation of cryptocurrency, which will give nuanced clarifications on applicability of income tax on virtual digital assets. The 2022-23 Budget has brought in clarity with regard to levy of income tax on crypto assets.
From 1st April, a 30% 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. A 1% TDS on payments over Rs10,000 towards virtual currencies has also been introduced which will kick in from 1st July.
The threshold limit for TDS would be Rs50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act
As a result of these changes, IAs, cannot accept fees through credit cards, will have to sign a 26-clause investor agreement, have to maintain physical record written & signed by client, telephone recording, emails, SMS messages and any other legally verifiable record for five years. IAs were already asked to record the suitability and rationale for every piece of advice given, sign them and store them for five years.
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