India Clarifies Rules for Controversial Tax Provision Ahead of Start Date

India Clarifies Rules for Controversial Tax Provision Ahead of Start Date

The 1% tax deducted at source for virtual digital assets kicks in on July 1.

India’s Finance Ministry has issued guidelines to clarify the reporting mechanism for the contentious and soon-to-be-implemented 1% tax deducted at source (TDS) provision.

CoinDesk earlier reported how India would clarify that provision of its tax code.

The 1% TDS liability – which will take effect on July 1 – is the most controversial provision of India’s recently introduced crypto tax law, with the industry even exploring a legal challenge. Another provision, which enforces a 30% capital gains tax on all crypto transactions, took effect on April 1.

TDS is a liability imposed on the exchanges that deposit taxes on behalf of sellers on their platform. It will be calculated at 1% of a transaction’s value. The seller would be able to offset the 1% TDS from his or her total tax liability of 30%.

The government notification also clarified the timeline that parties have to report a virtual digital asset transaction. The government said it must be notified of a transaction within 30 days from the end of the month in which the transaction is made and any sum deducted must be paid to the government within the same time frame.

The format to report the transaction was also specified by the government. A new form will be introduced entitled 26QE, which will play the dual role of a statement and a receipt.

The new rules also say that the person responsible for paying the tax deduction should give a TDS certificate to the payee within 15 days from the due date for reporting it to the government.

The tax would have to be paid beforehand in cases where the payment for the transfer of a digital asset is in kind.

The parties will also have to maintain details like date of transfer of virtual digital assets, value of consideration and mode of consideration.

The latest clarification is said to be a precursor to the Indian Finance Ministry issuing an FAQ on taxation of cryptocurrency in order to provide more clarity.

The government has exempted transactions of up to Rs 50,000 ($640) in a year from the rule of 1% TDS for certain categories of taxpayers.

This article was originally published on coindesk.com

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