TDS On Crypto Transactions for Indian Users

June 29, 2022
Product

From July 1, the sale/transfer of Virtual Digital Assets (VDAs) will be subject to Tax Deduction at Source (TDS) of 1%, as per the Finance Act of 2022. This can be adjusted against your overall tax liability at the time of filing your annual income tax return.

TDS Update

The TDS provisions will be applicable from 1st July 2022. As per these provisions, TDS will be deducted on each trade where a Crypto asset/VDA is exchanged for INR or another Crypto asset/VDA.

One of three slabs of TDS applies to a crypto asset sale/transfer:

1) 1% if the receiver has filed Income Tax Returns, or

2) 5% if the receiver is a specified person under Section 206AB of the Income Tax Act.

In either case, the TDS is on the net transaction value.

3) 1% + 1% TDS on VDAs with lower liquidity for off-ramp.

To ensure your investing experience continues to stay as smooth as before, you as a user will not need to perform any extra steps while transacting on Pillow. Pillow, along with its off-ramp and banking partners, will do the needful.

Let’s understand the scenarios in which TDS is applicable:

  • Depositing INR in any Pillow Case: No TDS applicable
  • Interest accrual in Pillow Case: No TDS applicable
  • Withdrawing to INR from any Pillow Case: 1% TDS applicable on net order value or based on your slab set out by the Finance Act 2022. This can be adjusted against your overall tax liability at the time of filing your annual income tax return.
  • Withdrawing to INR from Pillow Cases with lower liquidity VDAs: (1%+1%) TDS will be levied on these cases where our off-ramp partners have lower liquidity for certain VDAs and have to source the VDAs from elsewhere.
    1) In these cases, the VDA will have to be sold for USDC or a VDA with higher liquidity in India which will attract a 1% TDS.
    2) The converted USDC will be then sold to INR which will attract a further 1% TDS will be withdrawn to the user’s bank account.

Update on Swap Transaction Fee for Crypto to INR Transactions

To be fully compliant with the new TDS regulations and to ensure that the exact amount of TDS per transaction is being deducted by our off-ramp partner, Pillow will no longer be able to absorb the swap transaction fee on trading your crypto to INR that our off-ramp partner charges. Starting July 1st, the swap transaction fee of 0.2% that was being charged by our off-ramp partner on your crypto to INR swap transactions will be passed as-is to you without a mark-up from Pillow’s side.

What Does This Mean for Me?

Eg: if you wish to withdraw INR 50,000 from USDx case, your withdrawal request will consist of the following:


Filing Tax Returns

As per the regulations, our onramp and liquidity partners will be required to deduct this tax during the transaction and then file TDS returns with the income tax authorities. The TDS can be adjusted against your overall tax liability at the time of filing your annual income tax returns.

To help you file your taxes, our off-ramp partners will generate an invoice(s) detailing all your TDS deductions. You will be able to access and download these invoices directly on the Pillow app.

Additional Resources

You can refer to the TDS ruling in the Finance Bill 2022,

In addition, you can follow updates from the Central Board of Direct Taxes.

We want to thank you for your support as we keep building the most convenient and compliant investing platform for our users.

If you have any questions, do reach us at support@pillow.fund.


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