Tax Deducted at Source (TDS) under Section 194S of the Income Tax Act (ITA) is a mechanism for collecting tax from the source of income. Here are some simplified guidelines for TDS under Section 194S:
The TDS liability as per Section 194S applies when the payment for transferring a VDA exceeds Rs. 50,000 in the financial year for a specified person and Rs. 10,000 for others.
A Specified Person refers to:
1. An individual or HUF without income from business or profession.
2. An individual or HUF with business income up to Rs. 1 crore.
3. An individual or HUF with professional receipts up to Rs. 50 lakh.
Recently, the Central Board of Direct Taxes (CBDT) has issued guidelines for the TDS deduction on VDAs.
1. Transfer of a VDA (in cash) through an Exchange (not owning the VDA)
2. If the transfer of VDA takes place on or through an Exchange (not owning the VDA), the transaction chain may look like this: Buyer⇒ Broker ⇒ Exchange ⇒ Broker⇒Seller (owner).
In this scenario, the exchange making the payment to the seller must deduct TDS. However, if the payment is made through a broker, both parties are responsible for the tax deduction. Alternatively, the exchange and broker may agree that the broker will handle the TDS on all transactions. The exchange must submit a quarterly report in Form No. 26QF by the due date.
In the case of a transfer of a VDA (in cash) through an Exchange that does not own the VDA, the transaction flow may involve several parties, including the buyer, broker, exchange, and the owner of the VDA. The buyer would credit the payment to the exchange (directly or through a broker), which will then be responsible for crediting the payment to the VDA owner (directly or through a broker). In this case, the exchange must deduct TDS. If the payment between the seller and the exchange is made through a broker, both the exchange and the broker would be responsible for deducting TDS. Alternatively, the exchange and the broker may agree that the broker will be responsible for the TDS deduction on all transactions. The exchange must furnish a quarterly report in Form No. 26QF by the due date.
The interplay of TDS under Section 194S and Section 194Q of the Income Tax Act pertains to the tax deduction at source (TDS) on the transfer of a VDA.
Section 194S deals with TDS for payment made for the transfer of VDA, which is applicable in the case of specified persons if the payment exceeds Rs 50,000 in a financial year, and in other cases if it exceeds Rs 10,000.
Section 194Q, on the other hand, deals with TDS for payment made for the transfer of a security (including VDAs). It mandates that the buyer of the security must deduct TDS if the payment exceeds Rs 1 lakh in a financial year.
In cases where both Section 194S and Section 194Q are applicable, the buyer would be required to deduct TDS under Section 194Q as it imposes a higher TDS obligation on the buyer compared to Section 194S. However, the seller may claim credit for the TDS deducted under Section 194Q in their tax return.
It is important to note that TDS under Section 194Q applies to the transfer of securities in general, while TDS under Section 194S is specific to the transfer of VDAs.
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