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The rules regarding Tax deductible at source (TDS) on virtual digital assets (VDAs) and cryptocurrencies are effective from July 1, 2022.

According to the rules, it is mandatory for the buyer of VDA to deduct 1 percent of amount paid to the seller (Indian resident). The TDS came into force from July 1 for transactions more than Rs. 10,000.

After these rules came into effect, the trading volumes in country’s largest crypto exchanges has decreased.

The Reserve Bank of India and Finance Minister, both have criticized the crypto or digital assets space, called it a speculation with no real value.

The Central Board of Direct Taxes (CBDT) had issued a circular on June 22, 2022, regarding the tax to be deducted on transfer of VDAs and cryptocurrencies.

The Finance Minister, Nirmala Sitharaman, introduced a flat 30 percent tax on VDAs and cryptocurrencies, which came into effect from April 1, 2022.

The rules were not clear until after CBDT issued clarifications on various issues as the Finance Act 2022 inserted a new section 194S in the Act.

The new section, the tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of the payment, whichever is earlier.

What does the new section states about TDS deduction

According to the circular by CBDT, the deduction is not required in cases where:

Any amount deducted under section 194S is to be paid to the central government within 30 days from the end of the month in which the deduction was made. The new regulations provide that the tax deductor must provide a TDS certificate to the payee within 15 days of the deadline for reporting the tax to the government.

Impact of TDS on Indian crypto trading scene

 According to the data from aggregator nomics.com depicts a decrease of 75 percent in WazirX and CoinDCX – India’s largest crypto exchanges.

The daily trading on WazirX had come down to $1.9 million on Saturday from $7.2 million on Monday. A similar situation is with CoinDCX, it saw a drop to $4.2 million from $14.6 million.

The imposition of 30 percent capital gains tax on digital assets has already decreased the investment and the new 1 percent TDS is said to decrease it further. India is also considering to levy a 28 percent goods and sales tax (GST) on crypto.