CBDT issues guidelines for removal of difficulties under Section 194S of IT Act, 1961

Last updated: 24 June 2022

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The Central Board of Direct Taxes (CBDT) has issued new guidelines to address difficulties concerning the tax deduction requirements under Section 194S of the Income-tax Act, 1961. This section, effective from July 1, 2022, mandates a 1% tax deduction on payments for the transfer of Virtual Digital Assets (VDAs). The guidelines provide clarity on who is responsible for deducting tax, especially in complex transactions involving exchanges and brokers, and how to handle tax deductions when consideration is in kind.

Circular No. 13 of 2022 No. 370142/29/2022-TPL (Part-I) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes (TPL Division) ***** New Delhi, dated 22nd June, 2022 Subject: Guidelines for removal of difficulties under sub-section (6) of section 194S

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FAQ :

Section 194S, introduced by the Finance Act 2022, requires persons responsible for paying consideration for the transfer of a Virtual Digital Asset (VDA) to deduct 1% of the sum as income tax.

Tax deduction applies when the consideration is credited or paid, whichever is earlier. However, it is not required if the consideration paid by a specified person does not exceed fifty thousand rupees or by any other person does not exceed ten thousand rupees in a financial year.

A specified person is an individual or HUF who has no income under the head 'profit and gains of business or profession', or whose business turnover or gross receipts do not exceed one crore rupees (or fifty lakh rupees for profession) in the preceding financial year.

For VDA transfers on or through an Exchange where the VDA is owned by someone other than the Exchange, the Exchange is responsible for deducting tax when crediting or paying the seller. If a broker is involved, the responsibility may fall on the broker based on agreements.

If the consideration is in kind or exchanged for another VDA, the person responsible must ensure the tax is paid before releasing the consideration. Alternatively, the Exchange can deduct tax for both legs of the transaction under a written agreement.

No, the tax required to be withheld under Section 194S is on the 'net' consideration after excluding GST and charges levied by the deductor for services rendered.

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CBDT issues guidelines for removal of difficulties under Section 194S of IT Act, 1961