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The Income-tax Act of 1961 was amended by the Finance Act of 2022 to include a new section 194S that allows for the deduction of tax at source (TDS) on the transfer of a virtual digital asset (VDA). TDS under section 194S will be applicable starting on July 1st, 2022.

The government has levied a 1% TDS on crypto transactions, over and above the 30% tax it already levies w.e.f 1st July, 2022.

Exchanges will deduct the tax from buyers of cryptos u/s 194S of the Income Tax act and deposit the same to the government within 30 days.

TDS certificate would have to be issued to the payee within 15 days from the due date of reporting the tax to the government. If the payment for the transfer of virtual digital assets is done in kind, the tax should be paid before making such payment in kind.


The threshold limit is ₹10,000, in a financial year, for everyone. However, it exceeds to ₹50,000 in case of:

  1. An individual or Hindu undivided family (HUF) who does not have any business or professional income.

  2. An individual or HUF whose turnover in business does not exceed 1 crore rupee & turnover in profession does not exceed 50 lakh rupee.

The Central Board of Direct Taxes (CBDT) has issued Circular No. 13/2022 on 22nd June 2022 containing the guidelines in the form of questions/ answers. The Guidelines clear air on numerous vexed issues. The incidence of TDS in various scenarios as described in these guidelines has been summarised.

Mode of Transaction Settlement

Particulars of Transaction

Responsibility & TDS deduction process

In Cash

Peer to Peer Transaction (directly from buyer & seller)


Where transaction is made through an exchange and the VDA is owned by a party other than exchange

Exchange (Which is crediting or making the payment to the seller or broker, if broker is seller)

Where transaction between exchange & seller is routed through a broker

  • Liability of TDS would be both upon Exchange and broker.

  • However, based on a written agreement, they may agree that the TDS shall only be deducted by broker.

Where transaction is made through an exchange and the exchange owns the VDA

Although the buyer is primarily responsible for paying TDS. However, the exchange has the option to reach a deal with the buyer or his broker under which it would adhere to its TDS duties.

In Kind

Peer to Peer Transaction (directly from buyer & seller)

In this case, each party is a buyer and a seller with regard to one of the VDAs. Before releasing the consideration (VDAs), they must ensure that all applicable taxes have been paid, and they must also receive proof of payment for records.

Where the transaction is through an exchange

TDS may be subtracted by exchange pursuant to a signed contract between the buyer and the seller. For both legs of the transaction, or for both of the traded VDAs, the exchange would deduct and deposit TDS.

YKG Corp

CA Mukul Gupta

+91 9910220566


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