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The Central Board of Direct Taxes (CBDT) recently clarified that non-filers of Income Tax Return (ITR) would have to pay higher TDS in one year under Section 206AB, instead of the earlier provision of two years. However, some non-filers have been exempted from paying higher TDS, even in case of virtual digital assets.
“… it has been provided that provisions of section 206AB will not apply in case of deduction of tax on transfer of virtual digital asset (VDA) under section 194S of the Act to a person being an individual or Hindu undivided family, whose sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such VDA is transferred or if such person does not have any income under the head ‘Profit and gains of business or profession’,” the CBDR said in a recent circular.
Explaining the CBDT statement, Dr Suresh Surana, Founder, RSM India, said that crypto non-filers exempted from paying higher TDS are “specified persons” responsible for withholding TDS under section 194S of the Income Tax Act.
The definition of ‘Specified person’ under section 206AB differs from said definition under section 194S of the Income Tax Act.
Who is the specified person under Section 194S?
For the purpose of Section 194S of the IT Act, Specified Person means a person being an individual or HUF whose total sales, gross receipts or turnover does not exceed Rs 1 crore in case of business and Rs 50 lakh in case of profession during the financial year immediately preceding the financial year or a person being an individual or HUF not having any income under the head Profits and gains of business and profession.
“Finance Act 2022 introduced Section 194S of the IT Act, wherein any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset is required to deduct TDS at the rate of 1% on such transfer of virtual digital asset to a resident for amount exceeding Rs.10,000. Further, in case where the payer is a specified person, the threshold limit is Rs. 50,000 and is not required to obtain TAN,” said Dr Surana.
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He further said that as per Section 206AB(1) of the Income Tax Act, 1961, higher rate of TDS would not be imposed in following withholding cases:
- 192 – Salary
- 192A – Payment of accumulated balance due to an employee
- 194B – Winnings from lottery or crossword puzzles
- 194BB – Winnings from horse race
- 194LBC – Income in respect of investment in securitization trust
- 194-IA – Payment on transfer of certain immovable property other than agricultural land.
- 194-IB – Payment of rent by certain individuals or Hindu undivided family.
- 194-M – Payment of certain sums by certain individuals or Hindu undivided family
- 194N – Cash withdrawals
In all the above cases, the payee would not be subjected to higher TDS rate u/s 206AB of the Income Tax Act even if he is a non-filer of return.
“Accordingly, the provisions of higher rate of tax deduction under section 206AB would not be applicable (even if the payee is a non-filer) in case where the payer is specified person responsible to withhold TDS u/s 194S. It is to be noted that the provisions of Section 194S would be made applicable only from 1st July 2022,” said Dr Surana.
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