Tax Talk: Know TDS changes on virtual digital assets


By Neha Malhotra

The Finance Act 2022 rolled out two TDS amendments, pertaining to Benefit/ Perquisites and Virtual Digital Assets (VDAs) by introducing section 194R and 194S in the Income-tax Act, 1961 (‘the Act’),effective from July 1, 2022.

Section 194R casts an obligation to deduct tax at source @10% on any person providing any benefit or perquisite over Rs 20,000 in a year to a resident, arising from the business or profession of such resident. The value of benefit/perquisite shall be based on fair market value, purchase price when the provider purchases before providing it and price charged to customers in case the provider is a manufacturer. However, GST will not be included for the purposes of valuation.

TDS liability
The CBDT has clarified that as the phrase ‘of whatever nature’ is used, the nature of asset given as benefit/perquisite is not relevant to impose TDS liability on the payer. Thus, benefit/perquisite, whether cash or kind or partly in cash and partly in kind, or capital asset in the hands of the recipient, all are in the ambit of 194R. Further, the deductor is not required to check whether such benefit/perquisite is taxable in the hands of the recipient under section 28(iv), 41(1), 195 or any other section.

Section 194S requires a person responsible for paying consideration to any resident for transfer of VDA, to deduct tax 1% of such consideration at the time of credit or payment, whichever is earlier. However, the deduction is not required when consideration payable by a specified person does not exceed Rs 50,000 in a financial year and Rs 10,000 in other cases.

The CBDT defined the responsibilities of deducting the tax under different circumstances. For instance, in case the transfer of VDA takes place on or through an exchange, and the VDA so transferred is not owned by the exchange, the onus to deduct tax shall be on exchange making the payment to the seller. However, if the VDA so transferred is owned by this exchange, the onus to deduct tax shall be with the buyer or his broker, unless a written agreement is entered where exchange agrees to pay tax on or before the due date. Further, if the payment between the seller and the exchange is through a broker, the responsibility to deduct tax shall be on both the exchange and the broker.

The CBDT notified that any sum deducted under section 194S by a specified person shall be deposited within 30 days in challan-cum-statement in Form 26QE. The deductor shall issue a certificate of deduction in Form No 16E to the deductee.

The guidelines have been issued in time considering these sections are effective from July 1, 2022. However, the notified forms requiring detailed disclosures are in line with the recently introduced provisions. Thus, it is imperative for deductees to be geared to understand, obtain, and collate the information required for compliance.

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