Section 194S — TDS on Transfer of Virtual Digital Assets (Crypto)

The Finance Act 2022 introduced two critical provisions for virtual digital assets (VDA) including cryptocurrency and NFTs: Section 115BBH (flat 30% tax on VDA income) and Section 194S (1% TDS on VDA transfers). These provisions apply from April 1, 2022 and July 1, 2022 respectively. Here is the complete guide.

What Is a Virtual Digital Asset (VDA)?

• Any information, code, number or token generated through cryptographic means — includes Bitcoin, Ethereum, Solana, all altcoins, and NFTs
• Excludes: Indian Rupee, any foreign currency, and any asset the Central Government explicitly notifies

Section 115BBH — Tax on VDA Income

• Income from transfer of VDA: Flat 30% + surcharge + cess (no deduction except cost of acquisition)
• No loss set-off: Loss from VDA cannot be set off against VDA gains from another coin or against any other income
• No loss carry-forward from VDA transactions
• Gifts of VDA: Taxable in recipient's hands under Section 56(2)(x) at full fair market value

Section 194S — TDS on VDA Transfer

• Rate: 1% of consideration paid on transfer of VDA
• Threshold: TDS applicable if aggregate consideration exceeds ₹10,000 in a financial year (₹50,000 for specified persons — HUF/individuals with no business income below audit threshold)
• Who deducts: The person paying for VDA (buyer must deduct TDS before paying the seller)
• Payment in crypto (barter): If VDA-A is exchanged for VDA-B, the person paying VDA-B must deduct 1% TDS
• TDS deposit: By 30th of the following month in which TDS is deducted

Forms for Compliance

• Form 26QE: Statement-cum-challan for specified persons (individuals not liable for tax audit) who deduct TDS under Section 194S — filed on TIN-NSDL; one form per deduction event
• Form 26Q: Quarterly TDS return for non-specified persons (businesses) reporting Section 194S deductions

Reporting in ITR

• Report VDA income in Schedule VDA in ITR-2 or ITR-3
• TDS credit: 1% TDS deducted appears in Form 26AS/AIS and can be claimed as credit against tax liability
• Multiple crypto exchanges → add up all transactions across exchanges for the schedule

Conclusion

Section 194S and 115BBH together make VDA taxation in India one of the strictest globally — with 30% flat tax and no loss set-off. SPOTON provides crypto tax advisory, VDA ITR filing and Section 194S compliance for investors and traders in Kerala. Contact us for expert crypto tax services.