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Apply NowThe Indian government's initial response to cryptocurrencies was to approach the topic cautiously. However, the tremendous popularity and huge trading volumes garnered by crypto and virtual digital assets (VDAs) recently prompted the government to take action, resulting in the cryptocurrency tax laws, which clearly state the tax implications on digital asset management.
In Union Budget 2022, the Finance Minister announced the cryptocurrency tax in India at a flat rate of 30 percent on any income from the transfer of VDAs. Additionally, another section 194S dedicated to the treatment of Tax Deducted at Source (TDS) in the event of a transfer of a VDA was also announced.
Let's explore a few takeaways on TDS on VDAs and cryptocurrencies according to the new law.
TDS is a direct tax levied on all sorts of revenues, dividend incomes, or asset deals. It is an important source of revenue for the government. TDS is charged at the point of payment or the source itself if the payment exceeds a certain limit. TDS is regulated by the Central Board of Direct Taxes (CBDT) in India. The new tax law mandates that TDS shall apply to all eligible transactions related to VDAs from 1 July 2022.
Any person buying VDAs or cryptocurrency must deduct a TDS of 1 percent of the total amount paid to the seller, according to section 194S of the Income Tax Act. The government has specified a certain limit, beyond which all transactions will attract TDS at the time of credit of the said payment.
Here are the conditions under which taxes CBDT will apply (that is, TDS on VDAs).
Here is the definition of 'specified person' as per the cryptocurrency tax laws.
Conclusion
The government's primary objective for enabling the cryptocurrency tax in India is to bring about regulation in the crypto market that will deter casual investors from dabbling in the field without the required knowledge or research. Besides, by introducing TDS on every transaction beyond a certain limit, the government can keep track of every crypto or VDA transaction and maintain records of the same.
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