This Tax Alert explains Circular No. 13 dated 22 June 2022 (Circular) issued by the Central Board of Direct Taxes (CBDT) with a view to remove difficulties and provide guidance for giving effect to the newly inserted provision for tax deduction at source (TDS) on consideration arising from transfer of virtual digital asset (VDA) under the Income Tax Law (ITL).
With effect from 1 July 2022, a person responsible for paying any sum as consideration to a resident in India for transfer of VDA, is required to undertake TDS @ 1%, subject to certain conditions. The ITL also contains a specific provision enabling the CBDT to issue guidelines for the purposes of removal of any difficulty in giving effect to the TDS provisions on transfer of VDA (TDS on VDA).
Pursuant to representations made by the stakeholders and in exercise of the power to issue guidelines to remove difficulties, the CBDT has issued the Circular to clarify certain issues on the interpretation/application of TDS on VDA.
Key clarifications provided in the Circular broadly include (i) determining the person responsible for withholding tax where the transfer of VDA is routed through an “Exchange” (thereby involving multiple parties in a transaction); (ii) TDS mechanism where transfer of VDA is for consideration paid in kind or in exchange for another VDA; (iii) TDS when consideration is paid through a payment gateway; (iv) clarification on overlap between TDS on VDA and TDS on purchase of goods; (v) TDS on net value of consideration and (vi) computation of annual thresholds to trigger TDS on VDA.
CBDT has also, vide a separate Notification, amended the procedural rules and prescribed forms to enable various compliances and furnish information, inter alia, in relation to TDS on VDA.
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