Section 194S : TDS on payment on transfer of virtual digital asset - Income Tax - Ready Reckoner - Income Tax

Section 194S : TDS on payment on transfer of virtual digital asset (VDA) [ inserted w.e.f. 01-07-2022] Who can be Deductor Any person responsible for paying to any resident person any sum by way of consideration for the transfer of a virtual digital asset is required to deduct tax at source under Section 194S. The person responsible for the deduction of tax under different circumstances shall be as follows: (a) Where the buyer and seller of virtual digital asset know each other in an over-the-counter (OTC) deal, the buyer shall deduct tax at source. (b) In case of exchange of VDAs, both payer and payee may be liable to deduct tax at source as the transfer of VDA happens from both sides. (c) Where VDAs are transferred through an Exchange and payment to the seller is made directly by the exchange, In such cases, the exchange shall be liable to deduct tax at source. (d) Where VDAs are transferred through an Exchange but the payment is made to the seller through a broker. In such case, both the Exchange and the broker shall be liable to deduct tax at source. However, if there is a written agreement between the Exchange and the broker that the broker shall be deducting tax on such payment, then such broker alone may deduct the tax. (e) Where VDA being transferred is owned by the exchange itself, the primary responsibility to deduct tax shall be of the buyer or his broker. However, as an alternative, the Exchange may enter into a written agreement with the buyer or his broker that in regard to all such transactions the Exchange would be paying the tax on or before the due date for that quarter. (f) Where one VDA is exchanged with another VDA through an Exchange, the primary responsibility to deduct tax is of though buyer and the seller. But, as an alternative, the Exchange may deduct tax based on a written contractual agreement with the buyer and the seller. (g) Where the payment for the transfer of VDA is made through payment gateways, the payment gateway will not be required to deduct tax if the tax has been deducted by the person required to make deduction under this provision. Who can be Deductee Tax is required to be deducted if the consideration is paid or payable to a resident person. If the recipient of the consideration is a non-resident, the tax may be deductible under Section 195. Applicability or Rate of Tax TDS Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall deduct an amount equal to 1% of such sum as income-tax thereon. If the deductee does not furnish PAN, the tax shall be deducted at the rate of 20% as per Section 206AA or if the deductee has not furnished a return of income for a specified period, the payer shall deduct tax at the rate of 1% (if the payer is a specified person ) or 5% (if the payer is not a specified person) as per the Section 206AB. [ Section 206AB(1) ] Specified Person means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the return of income under section 139(1) has expired and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in the said previous year. A specified person is not required to apply or obtain a Tax Deduction or Collection Account Number (TAN) for deducting tax under this provision . Thus, he shall be required to quote his PAN in challan and TDS statement. The specified person shall not include (i) a non-resident who does not have a permanent establishment in India; or (ii) a person who is not required to furnish the return of income for the assessment year relevant to the said previous year and is notified by the Central Government in the Official Gazette in this behalf. Where both the provision of Section 206AA and Section 206AB are applicable, that is, the deductee has neither furnished his PAN to the deductor nor has he furnished his return of income for the specified period, the tax shall be deducted at the rates provided in section 206AA or section 206AB, whichever is higher. [ Section 206AB(2) ] Time of Deduction:- At the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier. [ Section 194S(1) ] Where a person does intra-day trading in cryptocurrencies, the tax shall be deducted every time a transaction is squared-off. Where any sum referred to in sub-section (1) is credited to any account, whether called Suspense Account or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly. [ Section 194S(5) ] In case consideration is wholly in kind or in exchange of another VDA or partly in cash and partly in kind : Provided that in a case where the consideration for transfer of virtual digital asset is- (a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or (b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset. [ Proviso to Section 194S(1) ] Note:- Read with Guidelines for removal of difficulties under section 194S(6) of the Income-tax Act, 1961 [ Circular No. 13 of 2022 Dated 22/06/2022 ] Tax deduction at source under section 194S of the Act for transactions other than those taking place on or through an Exchange. [ Circular no. 14 of 2022 Dated 28/06/2022 ] Overriding effect of Section 194S Where a transaction is subject to TDS under Section 194S and any other section like 194-O, tax shall be deducted under Section 194S. However, where the payer deducts tax under Section 194S, it shall not absolve the payee from deduction of tax under relevant provisions. For example, if an architect receives Bitcoin from his client as consideration for services, then the architect shall be liable to deduct tax under Section 194S as he is giving the consideration in the form of architecture services to the client transferring the VDA and, on the other side, the client may also be liable to deduct tax under section 194J as he is making payment in form of VDA for services provided by the architect. Non applicability of TDS under section 194S S.No. Consideration Payable by Threshold Limit (i) specified person means being an individual or a Hindu undivided family, (a) whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed ₹ 1 crore in case of business or ₹ 50 lakh in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred; (b) not having any income under the head Profits and gains of business or profession ₹ 50,000 (ii) Any person other than specified person mention in (i) ₹ 10,000 The provisions of sections 203A and 206AB shall not apply to a specified person. Sec 194S(4) : TDS not to be deducted or collected under any other provisions Notwithstanding anything contained in section 194-O , in case of a transaction to which the provisions of the said section are also applicable along with the provisions of this section, then, tax shall be deducted under section 194S(1) . Due date of Remittance to government account [ Rule 30 ] Any sum deducted by a Specified Person shall be deposited to the credit of the Central Government by remitting it electronically into the Reserve Bank of India or the State Bank of India or any authorised bank within a period of thirty days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QE . [ Sub rule (2D) and (6D) ] Any sum deducted by other than Specified Person (i.e. Exchanger or Any other Person) through Challan ITNS 281 On or before 30th day of April where the income or amount is credited or paid in the month of March ; and In any other case, on or before seven days from the end of the month in which- (i) the deduction is made; or (ii) income-tax is due under section 192(1A) . [ Sub rule (2) ] Furnishing Statement of TDS ( Form Due date ) u/s 200(3) [ Rule 31A ] By a Specified Person a challan-cum-statement in Form No. 26QE electronically in accordance with the procedures, formats and standards specified under rule 31A(5) within thirty days from the end of the month in which the deduction is made . [ Rule 31A(4D) ] By a Exchange a person that operates an application or platform for transfer of virtual digital assets, which matches buy and sell trades and execute the same on their application or platform; Form:- the Exchange shall deliver or cause to be delivered, a quarterly statement of such transactions in Form No. 26QF to the Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems) or the person authorised by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems). [ Proviso to rule 31A(1) ] By any other person Form :- the following quarterly statements to the DGIT (Systems) or the person authorised by the DGIT (Systems), namely:- Statement of deduction of tax under sections 193 to 196D (other than section 194P ) in- (i) Form No. 27Q in respect of the deductee who is a non-resident not being a company or a foreign company or resident but not ordinarily resident; and (ii) Form No. 26Q in respect of all other deductees. [ Rule 31A(1)(b) ] Due date Common for Exchange or Any other Person ​​​​​​ [ Rule 31A(2) ] Sl. No. Date of ending of quarter of F.Y. Due date 1. 30th June 31st July of the financial year 2. 30th September 31st October of the financial year 3. 31st December 31st January of the financial year 4. 31st March 31st May of the financial year immediately following the financial year in which the deduction is made TDS Certificate Person who is responsible for deduction of tax under that section shall furnish the certificate of deduction of tax at source in [ Rule 31 ] For specified Person:- Form No.16E to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No.26QE under rule 31A. [ Rule 31(3D) ] For Exchange or Any other Person :- Form 16A shall be furnished to the payee within fifteen days from the due date for furnishing the statement of tax deducted at source in Form 26QE/ Form 26Q under rule 31A. [ Rule 31(3) ] Consequences for failure to deduct or deposit tax Where any person responsible for deducting tax at source fails to deduct tax or after deducting fails to deposit the same, he shall be treated as assessee-in-default. In that case, interest under section 201 will be applicable. If the deductor fails to deduct TDS, interest at the rate of 1% per month or part of the month shall be applicable, till such failure continues. Interest shall be calculated from the date when such tax was required to be deducted till the date such tax is actually deducted. Further, if the deductor after having deducted the tax, fails to deposit the same to the credit of the Central Government, interest at the rate of 1.5% per month or part thereof shall be applicable till such failure continues. The interest computation shall commence from the date on which the tax was deducted and end with the date when such tax was deposited to the government. Penalty and Prosecution Failure to comply with the provisions of deduction of tax at source under this provision may result in penalties and prosecution as per the following provisions: a) If a person fails to deduct tax at source, he shall be liable for payment of penalty under Section 271C ; b) If a person fails to ensure payment of tax, he shall be liable for payment of penalty under Section 271C and prosecution under Section 276B; c) If a person deducts tax but fails to deposit the same to the credit of the Central Government, he shall be liable for the penalty under Section 221 and prosecution under Section 276B. However, no person shall be punishable under Section 276B if he proves that there was reasonable cause for the failure. Further, a person can also file an application for compounding of offence. Consequences for failure to furnish TDS Statement Where any person fails to furnish a TDS statement, section 234E shall be applicable, wherein the deductor is liable to pay fees at the rate of ₹ 200 per day during such default continues. However, such fees should not exceed the amount of TDS. Waiver of Late fee - Ex-post facto extension of due date for filing Form No. 26QE which was required to be filed during the period 01.07.2022 to 28.02.2023. [ Circular No. 04/2024 dated 07.03.2024 ] Moreover, he shall be liable for penalties under sections 271H of ₹ 10,000 which can be extended to ₹ 1,00,000, and 272A of ₹ 500 for every day during which failure continues. Consequences for failure to issue TDS Certificates Where any person, responsible for issuing TDS Certificates, fails to issue such certificates, a penalty under section 272A shall be applicable of ₹ 500 for every day during which failure continues.