Center for clarifying benefits TDS, VDAs


The Central Board of Direct Taxes (CBDT) is set to issue guidance notes on two key tax proposals introduced in the Union’s FY23 budget which expand the withholding tax provisions to the source (TDS) so businesses have a better understanding of the provisions before kicking in.

There will be two separate guidance notes – one on the provisions of the TDS on virtual digital assets (VDAs) and the other on the TDS on certain benefits of the nature of business sales promotion expenses covered by the new Section 194R of the Income Tax Act. — explained a person familiar with the development.

These guidance notes will be published before July 1, when the two provisions of the TDS come into force, said the person, who spoke on condition of anonymity.

However, there is unlikely to be a relaxation on the scope of what qualifies as virtual digital assets, although industry players hope so. “The law is clear on what a virtual digital asset is,” the person quoted above said.

The government introduced a new tax regime for virtual digital assets in the 2022 finance law which provided for a 30% tax with no compensation for losses and no deductions other than the cost of purchase. The new regime also included a 1% TDS tax on payment for the transfer of a virtual digital asset to a resident.

This provision of the TDS is implemented under a new provision added to the Income Tax Act, Section 194S. The provision emphasizes that in some cases, for example where the payment for the transfer of the digital asset is in kind, it must be ensured that the tax is paid before making such payment in kind.

The CBDT has expanded the scope of TDS provisions to collect transaction data and ensure that revenues do not go unnoticed. Section 194R dealing with the 10% TDS was introduced to cover cases where benefits exceed 20,000 is given to a person as part of the business.

For example, if a manufacturing business provides a benefit to anyone who supports the business, such as a dealership, the TDS provision will help the department capture data about it in addition to prompting the recipient of that benefit to report that income. in his tax returns and pay the tax.

Experts said that in addition to clarifications on the provisions of the TDS, relief from the scope of the tax regime for virtual digital assets would be extremely helpful for the fledgling industry. They say airline miles or credit card points could be specifically excluded from the scope of virtual digital assets.

“Government clarifications on the scope of virtual digital assets before the first installment due date would be extremely helpful for businesses. Non-fungible tokens (NFTs) should be excluded from the scope of virtual digital assets, as the tax regime allows them to be taxed either as business income in the hands of a merchant or as a gain in capital in the hands of an investor,” said Sudhir Kapadia, National Tax Manager, EY The first tax installment is due by June 15.

An email sent to the Department of Finance on Thursday seeking comment on the story went unanswered at press time.

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