Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194S of the Income-tax Act governs TDS on virtual digital assets (crypto).
This guide sets out the TDS rate under Section 194S, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194S?
Section 194S imposes TDS on the transfer of virtual digital assets such as cryptocurrency and NFTs.
Rate, threshold and who deducts
| Nature of payment | Virtual Digital Assets (crypto) |
|---|---|
| TDS rate | 1% of the consideration |
| Threshold | ₹50,000 (₹10,000 for specified persons) in a financial year |
| Who deducts (deductor) | Buyer / exchange facilitating the transfer |
| Whose income (deductee) | Seller of the VDA |
| Time of deduction | At the time of payment or credit |
Key points
- Exchanges typically handle the deduction for trades on their platform.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on virtual digital assets (crypto) at the time of payment or credit.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194S appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Is crypto taxed in India?
Gains on VDAs are taxed at 30% and a 1% TDS applies on transfers under Section 194S.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.