TDS on Transfer of Virtual Digital Assets

Why in the News?

The Central Board of Direct Taxes (CBDT) has issued detailed guidelines on the tax deducted at source (TDS) rule for virtual digital assets (VDAs).

TDS Guidelines

• A TDS of 1 per cent shall be levied on the transfer of VDAs effective July 1, 2022, if the value of transactions exceeds Rs 10,000 in a year.
• If the seller’s PAN is unavailable, then the tax at the time of transfer of VDA will be deducted at the rate of 20%.
• Further, if an individual (seller) has not filed his/her income tax return, then TDS will be deducted at a higher rate of 5% (as against the normal rate of 1%).
• Even if payment is made in kind or two VDAs are interchanged, the TDS is applicable.

What are Virtual Digital Assets?

Virtual digital assets are defined widely to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, and include non-fungible tokens notified by the Government. 

What are Non-Fungible Tokens?

• An NFT is a digital asset that exists on a blockchain, allowing anyone to verify its authenticity and who owns it.
• Digital art, images, videos, text, music, and even virtual real estate and in-game items can be bought and sold as NFTs.

Need to Tax Virtual Digital Assets

• Enhanced Trading: Virtual digital assets have gained tremendous popularity in recent times, and the volumes of trading in such digital assets have increased substantially.
• Gifting Prevalence: The gifting of virtual digital assets is also a popular mode of exchange.