Decoding Crypto TDS for P2P Trades in India: A Simple Guide for Crypto Traders

Navigating the world of crypto taxes can feel like deciphering a secret code, especially with India’s evolving regulations. If you’re a crypto trader in India, particularly engaging in Peer-to-Peer (P2P) transactions, you’ve probably heard whispers about TDS (Tax Deducted at Source) and Section 194S of the Income Tax Act. It sounds complex, right? Don’t worry, you’re not alone! Many crypto enthusiasts are scratching their heads, wondering how these new rules apply to them, especially outside the familiar territory of crypto exchanges.

Understanding the Crypto Tax Landscape in India: A Quick Recap

Before we dive into the specifics of P2P and TDS, let’s quickly recap the crypto tax framework in India. The Indian government introduced a 30% tax plus applicable surcharge and cess on income from Virtual Digital Assets (VDAs), which includes cryptocurrencies and NFTs. Alongside this, a 1% TDS under Section 194S was also implemented. Initially, there was some confusion, particularly around how TDS would be applied in various trading scenarios.

For transactions happening through crypto exchanges, the process is relatively streamlined. Exchanges typically handle the TDS deduction at the point of transaction. But what about P2P trades or transactions happening ‘outside’ the exchange ecosystem? That’s the burning question we’re tackling today.

How Does TDS Apply to P2P Crypto Transactions? The Million-Dollar Question

This is where things get interesting, and frankly, a bit more hands-on for you as a crypto trader. The core principle of TDS is that the buyer is responsible for deducting tax at source and depositing it with the government. Yes, you read that right! If you are buying crypto through a P2P transaction, under certain conditions, you might need to deduct TDS.

Let’s break down the key aspects:

• Who Deducts TDS in P2P Crypto Trades? The buyer of the crypto asset is responsible for deducting TDS from the payment made to the seller.
• When is TDS Applicable in P2P Crypto Transactions? TDS is applicable when the value of Virtual Digital Assets (VDAs) acquired by a buyer from a seller exceeds certain threshold limits in a financial year.

Threshold Limits: When Does TDS Kick In?

The good news is that not every P2P crypto transaction will trigger TDS. There are threshold limits defined to provide some relief, especially for smaller transactions. Let’s look at these thresholds:

• General Threshold: INR 10,000 per Financial Year – For most buyers, TDS needs to be deducted if the total value of VDAs purchased from a single seller exceeds INR 10,000 during a financial year.
• Higher Threshold for ‘Specified Persons’: INR 50,000 per Financial Year – A higher threshold of INR 50,000 applies to ‘specified persons’. But who exactly is a ‘specified person’?

Decoding the ‘Specified Person’ Category

According to the regulations, a ‘specified person’ is essentially an individual or HUF (Hindu Undivided Family) who meets the following criteria:

• They are not required to get their accounts audited under section 44AB (a) or (b) of the Income Tax Act in the immediately preceding financial year. This generally applies to individuals and HUFs with relatively lower business income.

In simpler terms, if you are an individual or HUF and your business income is below the threshold requiring an audit (which is typically quite high), you likely fall under the ‘specified person’ category and benefit from the INR 50,000 threshold.

Important Note: These thresholds are per financial year and apply to the aggregate value of VDAs purchased from each seller. So, if you buy crypto from multiple sellers, you need to track the transactions separately for each seller.

The TDS Deduction Process: Step-by-Step for P2P Crypto Buyers

Okay, so you’ve determined that TDS is applicable to your P2P crypto transaction. What now? Here’s a simplified step-by-step guide:

1. Obtain Seller’s PAN and Details: You’ll need the seller’s Permanent Account Number (PAN) and other relevant details to comply with TDS requirements. This is crucial for filing the TDS return correctly.
2. Deduct TDS at 1%: Calculate TDS at 1% of the transaction value exceeding the applicable threshold (INR 10,000 or INR 50,000).
3. Generate Challan 26QE: For TDS on VDAs under Section 194S, you need to use Challan 26QE to deposit the TDS amount with the government. This challan is specifically designed for payments under Section 194S for transfer of VDAs.
4. Deposit TDS: Deposit the TDS amount using Challan 26QE within the stipulated time. The due date for deposit is generally 7 days from the end of the month in which the deduction is made.
5. File Form 26QE: After depositing the TDS, you need to file Form 26QE. This form is essentially a statement of TDS deducted under Section 194S on the transfer of VDAs.
6. Issue TDS Certificate (Form 16E): After filing Form 26QE, you are required to issue a TDS certificate in Form 16E to the seller, providing details of the TDS deducted.

TAN Requirement: Interestingly, for depositing TDS using Challan 26QE, you are not required to obtain a Tax Deduction and Collection Account Number (TAN) if you are an individual or HUF and not otherwise required to obtain TAN. This simplifies the process for many individual crypto traders engaging in P2P transactions.

Practical Scenarios and Examples

Let’s solidify our understanding with a couple of practical scenarios:

Scenario 1: Small Crypto Investor (General Threshold)

Ramesh, a crypto enthusiast, buys Bitcoin worth INR 15,000 from Suresh in a P2P transaction in a financial year. Since the transaction value exceeds INR 10,000, TDS is applicable.

• TDS Amount = 1% of (INR 15,000) = INR 150
• Ramesh needs to deduct INR 150 as TDS, pay INR 14,850 to Suresh, deposit INR 150 as TDS using Challan 26QE, and file Form 26QE.

Scenario 2: Freelancer with Moderate Income (‘Specified Person’ Threshold)

Priya, a freelancer (not subject to audit under section 44AB), purchases Ethereum worth INR 60,000 from Vikram in a P2P trade in a financial year. Since Priya is a ‘specified person’ and the transaction exceeds INR 50,000, TDS applies.

• TDS Amount = 1% of (INR 60,000) = INR 600
• Priya deducts INR 600 as TDS, pays INR 59,400 to Vikram, deposits INR 600 as TDS using Challan 26QE, and files Form 26QE.

Implications and Concerns: The ‘Not Your Keys, Not Your Crypto’ Angle

One of the concerns raised in the original content snippet is the implication of TDS on P2P transactions for crypto privacy and self-custody. When you engage in P2P trades and comply with TDS requirements, you are essentially disclosing your crypto holdings and transaction details to the tax authorities. This brings the ‘not your keys, not your crypto’ philosophy into sharp focus.

While complying with regulations is essential, some crypto users might feel that this level of transparency in P2P transactions goes against the ethos of decentralization and privacy often associated with cryptocurrencies. It’s a balancing act between regulatory compliance and the principles of crypto autonomy.

Key Takeaways and Actionable Insights for Crypto Traders in India

• Understand the Thresholds: Be clear about the INR 10,000 and INR 50,000 thresholds and which one applies to you.
• Track P2P Transactions: Maintain proper records of your P2P crypto purchases, including seller details and transaction values.
• Comply with TDS Requirements: If TDS is applicable, ensure you follow the steps for deduction, deposit, and filing Form 26QE diligently.
• Seek Professional Advice: If you’re unsure about any aspect of crypto taxation or TDS, it’s always best to consult with a tax advisor or financial professional.
• Stay Updated: Crypto regulations are constantly evolving. Stay informed about any changes in tax laws and guidelines related to cryptocurrencies in India.

Conclusion: Navigating the Crypto TDS Maze with Confidence

The introduction of TDS on crypto transactions, including P2P trades, adds a layer of complexity to the Indian crypto landscape. However, by understanding the rules, thresholds, and processes involved, you can navigate this maze with greater confidence. While it might seem like an extra step, complying with TDS ensures you are on the right side of the law and contributes to a more regulated and transparent crypto ecosystem in India. Stay informed, trade responsibly, and remember that knowledge is your best asset in the dynamic world of cryptocurrencies!