The provisions relating to TDS on transactions involving virtual digital assets have been restructured under the Income-tax Act, 2025. The earlier Section 194S of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 8(vi)], effective from 1st April, 2026.
This restructuring retains the provisions relating to deduction of tax at source on transfer of virtual digital assets, including cryptocurrencies and NFTs, while continuing the objective of ensuring tax compliance in digital transactions.
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(1)
- Table Reference: Table: Sl. No. 8(vi)
- Nature of Payment: Consideration for transfer of virtual digital assets
- Earlier Section (IT Act 1961): Section 194S
- Return Form: 140 / 141 (as applicable)
- Code (for return filing): 1037
Applicability of TDS
TDS is required to be deducted on payment made for transfer of virtual digital assets (VDAs), including cryptocurrencies and non-fungible tokens (NFTs). The provision applies to transactions involving transfer of such assets for consideration.
Specified Person under Section 194S
A specified person includes:
- Individual or HUF not having income under the head “Profits and gains of business or profession”
- Individual or HUF having:
- Business turnover up to ₹1 crore, or
- Professional receipts up to ₹50 lakh
This classification is relevant for determining threshold limits and compliance requirements.
Deductor and Deductee
- Deductor:
- Buyer of virtual digital asset
- Deductee:
- Resident seller of such asset
Time of Deduction
TDS shall be deducted at the earlier of:
- Time of credit of the amount
- Time of payment
Rate of TDS
- 1% on the consideration paid for transfer of VDA
- In cases where PAN is not furnished:
- 20%, as per applicable provisions
Threshold Limit
- ₹10,000 per financial year for:
- Persons other than specified persons
- ₹50,000 per financial year for:
- Specified persons
Compliance Responsibility
- Buyer Responsibility:
- Buyer must deduct TDS before making payment
- Exchange Transactions:
- Exchange may deduct and deposit TDS
- Peer-to-Peer Transactions:
- Buyer is responsible for compliance
- Broker/Exchange Cases:
- Responsibility may be shared or contractually assigned
Special Cases
- Barter Transactions (VDA vs VDA):
- Both parties must ensure TDS compliance
- Multi-party Transactions:
- Exchange facilitating payment holds primary responsibility
- Broker and exchange may share responsibility
- Agreement-based Deduction:
- Broker may deduct TDS on behalf of exchange
- Exchange must report in Form 142
Example Scenarios
Scenario 1: Exchange Transaction
- Buyer purchases cryptocurrency worth ₹1,00,000 through an exchange
- TDS deducted = ₹1,000 (1%)
- Exchange deposits tax and credits balance to seller
Scenario 2: Peer-to-Peer Transaction
- Buyer purchases cryptocurrency worth ₹30,000
- TDS deducted = ₹300 (1%)
- Buyer deposits tax with the government
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