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The latest amendments in the TDS rules impact the taxation of virtual digital assets (VDA), including cryptocurrencies. As per the Finance Bill 2023, failure to pay TDS on crypto transactions or crypto transactions where the payment is partly or wholly in kind under section Section 194S(1) can land the violator of the rule in jail for up to 7 years.
Clause 119 of the Bill reads, “It is proposed to amend clause (a) of the said section so as to make it applicable if a person fails to pay to the credit of the Central Government the tax deducted at source by him as required by or under the provisions of Chapter XVII-B. It is further proposed to substitute clause (b) of the said section to provide that failure to pay tax or ensure payment of tax, to the credit of the Central Government as required by or under sub-section (2) of section 115-O, the proviso to section 194B, the first proviso to sub-section (1) of section 194R or the proviso to sub-section (1) of section 194S shall be eligible for initiating proceedings under the section.”
The bill further reads,
“Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.
276B. If a person fails to pay to the credit of the Central Government,—
(a) the tax deducted at source by him as required by or under the provisions of Chapter XVII-B; or
(b) the tax payable by him, as required by or under—
(i) sub-section (2) of section 115-O; or
(ii) the proviso to section 194B,
he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.”
Purushottam Anand, an advocate and founder of Crypto Legal, breaks down the new amendment, “The latest Union Budget has introduced penalties if a person fails to pay tax as required in case of transfer of VDA in kind or for exchange of another VDA. In addition to fine, there is also a criminal consequence resulting in imprisonment for not less than three months but which may extend to up to seven years.”
Anand explains the amendment in the context of the previously introduced crypto taxes by adding, “Under the crypto taxation provisions introduced last year, any person who is paying any sum to an Indian resident as consideration for transfer of VDA is required to deduct 1 per cent TDS. Such consideration may be in form of cash or kind or even in form of another VDA.”
The Section 194S (1) of the Finance Bill 2022 which introduced TDS on crypto transactions reads, “Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, 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, deduct an amount equal to one per cent. of such sum as income-tax thereon: 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.”
Anand explains this with an example, he says, “In cases of exchange of one VDA for another, both the parties are a buyer as well as a seller for respective VDAs and, therefore both are required to deduct TDS. For example, if A is selling Bitcoin to B in exchange for Ethereum, A is required to deduct TDS as a buyer of Ethereum, and B is required to deduct TDS as a buyer of Bitcoin.”
Sharat Chandra, the co-founder of India Blockchain Forum told Business Today that this amendment is in line with several other global regulators who are posing stricter compliances for the industry.
He said, “By imposing punitive measures such as jail term, the government is consciously trying to disincentivise crypto native businesses. This is pretty much on the expected lines. Regulators and governments across the globe are collectively working towards closing down on regulatory gaps and enforcing stricter compliance on the digital asset industry.”
Copyright©2023 Living Media India Limited. For reprint rights: Syndications Today
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