Bitcoin is a decentralized cryptocurrency that is trading in the digital world. It’s designed to operate without any central controlling authority, and it can be used as an alternative currency for goods or services. The problem with most cryptocurrencies like BitcoinJaxx is not understanding how to calculate your TDS on bitcoin correctly at tax time if you are self-employed or have income from other sources such as investments etc…
The below information will help guide readers towards their appropriate methods of calculation so they can avoid having deductions taken away during tax season due to incorrect calculations made while filling out forms which could save them thousands in potential earnings!
Section 194S, which deals with TDS on virtual digital assets, comes into effect from 1 July 2022.
Nirmala Sitharaman, the Indian finance minister, announced last night that her government has decided to impose a 1% tax at source on transfers of cryptocurrency and other digital assets.
This provision regarding TDS will be effective from 1 July 2022, not 1 April 2022, as stated in the Finance Bill 2022 presented at Budget 2022.
“TDS (tax deducted at source) is more of a tracking tool than a tax. It is not a new tax nor is it an additional tax. The tax will help people track it, but at the same time taxpayers will be able to reconcile it with the total tax owing to the government,” Sitharaman said in a statement to the Lok Sabha, according to media reports.
“Any person responsible for paying to a resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income tax thereon,” she said, quoting an excerpt from Section 194S of the Income Tax Act, 1961.
When an amount of income tax is deducted from certain payments, such as rent, commissions, gains, salaries, and interest, among others, it is referred to as tax deducted at source. Whenever you receive a certain payment, the tax will be deducted at the source, meaning that the money will come to your hand with the tax deducted (at source).
For example, let’s say you are employed at a salary of Rs 25,000. The employer will deduct Rs 2,500 as TDS, and you will receive the balance as your salary. Additionally, he will provide you with a Form 16/16A TDS certificate to assist you with your tax filing.
The crypto exchange will give you Rs 5,940 (1%) and issue you a TDS certificate for Rs 60 if you sell ETH worth Rs 6,000 a month after buying it. Let’s take one more example. If you purchase Ethereum (ETH) on any crypto exchange for Rs 5,000, and then sell it at Rs 6,000 a month later.
Calculate Your TDS
TDS is deducted by the Income Tax Department when a transaction originates on a PAN. As a result, you must submit the TDS certificate, which must be provided to you by the paying company, along with your income tax return.
TDS is deducted for a variety of reasons, and if it can be refunded back to the taxpayer.
Say, for example, you earn Rs. 20,000 per month and your employer deducts Rs. 2,000 per month as TDS. The TDS can then be deducted from your total tax to be paid at the time of filing your income tax return. Since you would not have to pay tax in this case, you would receive a tax refund. (Slab rate 0 to Rs 2.5 lakh – tax not due)
Take the example of TDS for digital assets.
Let’s say you sold your Ethereum, which you purchased for Rs. 5,000, for Rs. 6,000. In this case, your TDS was Rs. 60, and your capital gain was Rs. 1,000. A virtual digital asset gain must be taxed at 30 percent under section 115BBH of the Income Tax Act, 1961. Hence, if you have already paid Rs 60 as TDS, you will have to pay a total tax of Rs 240. Since you have already paid Rs 300 as tax for this transaction (1000*30%= Rs 300).
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