TDS for Crypto Futures(Derivatives)

Hello Leo,

You're correct in noting that the 1% TDS introduced under Section 194S of the Income Tax Act, effective from July 1, 2022, applies to the transfer of Virtual Digital Assets (VDAs). However, this provision does not extend to crypto futures trading.Financial Express+4Help & Support+4CoinDCX-Blog+4

Why is TDS not applicable to crypto futures?

Crypto futures are derivative contracts that allow traders to speculate on the price movements of cryptocurrencies without owning the underlying assets. Since these contracts are settled in cash and do not involve the actual transfer of VDAs, they do not fall under the definition of a VDA as per Section 194S. Consequently, the 1% TDS on the transfer of VDAs does not apply to crypto futures transactions. Pi42+1The Economic Times

Tax Implications for Crypto Futures Trading:

• Tax Treatment: Profits from crypto futures trading are typically considered as business income and are taxed according to your applicable income tax slab rates. Pi42

• No TDS Deduction: Since the 1% TDS does not apply to crypto futures, no tax is deducted at source on these transactions.

• Tax Filing: You are required to report your crypto futures trading income under the 'Income from Business or Profession' section in your Income Tax Return (ITR).

Key Takeaway:

The 1% TDS on VDAs is specifically applicable to the transfer of actual cryptocurrencies or tokens. Since crypto futures are derivative contracts and not direct transfers of VDAs, they are not subject to this TDS provision. Therefore, you can trade crypto futures without the concern of TDS deductions, but you must ensure to report any gains or losses accurately in your tax filings.Pi42+2The Economic Times+2