We are paying for crypto bought from an Indian seller. Do we deduct tax, at what rate, and is there a threshold below which we can ignore it?
Yes, from 1 July 2022. Section 194S requires any person responsible for paying a resident any sum by way of consideration for transfer of a virtual digital asset to deduct one per cent of that sum, at the time of credit to the resident's account or at the time of payment, whichever is earlier. No tax is deducted where the payer is a 'specified person' and the value or aggregate value of the consideration does not exceed Rs 50,000 during the financial year, or where the payer is anyone else and it does not exceed Rs 10,000 during the financial year. Where the consideration is wholly in kind, or is a swap of one VDA for another, or the cash part is not enough to fund the deduction, the payer must ensure the tax has been paid BEFORE releasing the consideration.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2022-07-01, reported as Income-tax Act 1961, s.194S; inserted by the Finance Act 2022 (Act No. 6 of 2022), w.e.f. 1-7-2022; sub-section (2) substituted in part by the Finance Act 2025 (Act No. 7 of 2025), w.e.f. 1-4-2025. It bears on section 194S, section 2(47A), section 194-O, section 203A, section 206AB of the Income Tax Act 1961, in Crypto & Virtual Digital Assets and TDS Defaults matters.
Three features of this section catch people out. First, the in-kind proviso: a coin-for-coin swap is within the section, and because there is no cash to deduct from, the obligation converts into a duty to satisfy yourself that the tax has been paid before you release the consideration — that is why exchanges operate the deduction at their own level. Second, sub-section (4) resolves the overlap with s.194-O in favour of s.194S: where both would apply to a transaction, tax is deducted under s.194S(1), not under s.194-O. Third, the 'specified person' definition is not about the seller but about the PAYER — an individual or HUF whose business turnover did not exceed Rs 1 crore or professional gross receipts Rs 50 lakh in the immediately preceding financial year, or an individual or HUF with no income under the head profits and gains of business or profession. For such a payer the higher Rs 50,000 threshold applies and, by sub-section (2), s.203A does not apply, so no TAN is needed. Note a recent and easily missed change: sub-section (2) originally disapplied 'sections 203A and 206AB' to a specified person, and the words were substituted by the Finance Act 2025 with effect from 1 April 2025 so that only s.203A is now referred to. Sub-section (5) deems a credit to a suspense account to be a credit to the payee, which closes the obvious avoidance route. Sub-sections (6) and (7) are the source of the Board's guidelines, which are binding on income-tax authorities and on the payer. The guideline circular identified in the reported material read on this pass is CBDT Circular No. 13/2022 dated 22 June 2022, named in the ITAT Surat order in Ankit Kabra v ITO; the library also holds a separate entry for CBDT Circular 14/2022, whose text I did not read on this pass and about whose contents and enabling provision nothing is asserted here.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
Not a case. The section applies to any person responsible for paying to any RESIDENT any sum by way of consideration for transfer of a virtual digital asset.
Tax is to be deducted at one per cent of the sum, at the time of credit to the resident's account or at the time of payment by any mode, whichever is earlier (sub-section (1)). Where the consideration is wholly in kind or in exchange of another virtual digital asset with no part in cash, or is partly in cash and partly in kind with the cash part insufficient to meet the liability, the payer must ensure before releasing the consideration that the tax required to be deducted has been paid (proviso). Section 203A does not apply to a specified person (sub-section (2), as it stands after 1 April 2025; before that date the sub-section referred to sections 203A and 206AB). No tax is deducted where the consideration is payable by a specified person and its value or aggregate value does not exceed fifty thousand rupees during the financial year, or is payable by any other person and does not exceed ten thousand rupees during the financial year (sub-section (3)). Where both this section and s.194-O apply, tax is deducted under sub-section (1) (sub-section (4)). A credit to a suspense account or any other account is deemed a credit to the payee (sub-section (5)). The Board may, with the prior approval of the Central Government, issue guidelines for removing difficulties, and those guidelines, laid before each House of Parliament, are binding on the income-tax authorities and on the payer (sub-sections (6) and (7)). 'Specified person' is defined in the Explanation by reference to the payer's own preceding-year turnover, gross receipts or absence of business or professional income.
Not a judicial route. The section is a collection provision aimed at a market that leaves no conventional paper trail, and its design follows from that. The charge is on the payer rather than the exchange, because the class of payers is wider than the class of intermediaries; the in-kind proviso exists because a barter of one asset for another produces no cash from which one per cent can be withheld, and Parliament's answer was to shift the payer's obligation from 'deduct' to 'do not release until the tax is paid'. The Explanation's 'specified person' is a de minimis category of small and non-business payers, and the relief given to that category is procedural as well as monetary — a higher threshold and freedom from the TAN requirement. Sub-section (4) exists because a transaction through an e-commerce operator would otherwise attract s.194-O as well; the tie is broken in favour of the VDA-specific provision. The power in sub-sections (6) and (7) is unusually strong: guidelines issued under it are expressed to bind the authorities and the payer alike, which is why the Board's circulars, and not only the section, govern exchange-level and peer-to-peer compliance.
(3) Notwithstanding anything contained in sub-section (1), no tax shall be deducted in a case, where— (a) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or (b) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppYes, from 1 July 2022. Section 194S requires any person responsible for paying a resident any sum by way of consideration for transfer of a virtual digital asset to deduct one per cent of that sum, at the time of credit to the resident's account or at the time of payment, whichever is earlier. No tax is deducted where the payer is a 'specified person' and the value or aggregate value of the consideration does not exceed Rs 50,000 during the financial year, or where the payer is anyone else and it does not exceed Rs 10,000 during the financial year. Where the consideration is wholly in kind, or is a swap of one VDA for another, or the cash part is not enough to fund the deduction, the payer must ensure the tax has been paid BEFORE releasing the consideration. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 194S, section 2(47A), section 194-O, section 203A, section 206AB of the Income Tax Act 1961. It is reported as Income-tax Act 1961, s.194S; inserted by the Finance Act 2022 (Act No. 6 of 2022), w.e.f. 1-7-2022; sub-section (2) substituted in part by the Finance Act 2025 (Act No. 7 of 2025), w.e.f. 1-4-2025. Three features of this section catch people out. First, the in-kind proviso: a coin-for-coin swap is within the section, and because there is no cash to deduct from, the obligation converts into a duty to satisfy yourself that the tax has been paid before you release the consideration — that is why exchanges operate the deduction at their own level. Second, sub-section (4) resolves the overlap with s.194-O in favour of s.194S: where both would apply to a transaction, tax is deducted under s.194S(1), not under s.194-O. Third, the 'specified person' definition is not about the seller but about the PAYER — an individual or HUF whose business turnover did not exceed Rs 1 crore or professional gross receipts Rs 50 lakh in the immediately preceding financial year, or an individual or HUF with no income under the head profits and gains of business or profession. For such a payer the higher Rs 50,000 threshold applies and, by sub-section (2), s.203A does not apply, so no TAN is needed. Note a recent and easily missed change: sub-section (2) originally disapplied 'sections 203A and 206AB' to a specified person, and the words were substituted by the Finance Act 2025 with effect from 1 April 2025 so that only s.203A is now referred to. Sub-section (5) deems a credit to a suspense account to be a credit to the payee, which closes the obvious avoidance route. Sub-sections (6) and (7) are the source of the Board's guidelines, which are binding on income-tax authorities and on the payer. The guideline circular identified in the reported material read on this pass is CBDT Circular No. 13/2022 dated 22 June 2022, named in the ITAT Surat order in Ankit Kabra v ITO; the library also holds a separate entry for CBDT Circular 14/2022, whose text I did not read on this pass and about whose contents and enabling provision nothing is asserted here. If it applies to you, the first step is this: Fix the date first: there is no deduction obligation under this section for any payment made before 1 July 2022.
Not a case. The section applies to any person responsible for paying to any RESIDENT any sum by way of consideration for transfer of a virtual digital asset. The matter was decided on 2022-07-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Tax is to be deducted at one per cent of the sum, at the time of credit to the resident's account or at the time of payment by any mode, whichever is earlier (sub-section (1)). Where the consideration is wholly in kind or in exchange of another virtual digital asset with no part in cash, or is partly in cash and partly in kind with the cash part insufficient to meet the liability, the payer must ensure before releasing the consideration that the tax required to be deducted has been paid (proviso). Section 203A does not apply to a specified person (sub-section (2), as it stands after 1 April 2025; before that date the sub-section referred to sections 203A and 206AB). No tax is deducted where the consideration is payable by a specified person and its value or aggregate value does not exceed fifty thousand rupees during the financial year, or is payable by any other person and does not exceed ten thousand rupees during the financial year (sub-section (3)). Where both this section and s.194-O apply, tax is deducted under sub-section (1) (sub-section (4)). A credit to a suspense account or any other account is deemed a credit to the payee (sub-section (5)). The Board may, with the prior approval of the Central Government, issue guidelines for removing difficulties, and those guidelines, laid before each House of Parliament, are binding on the income-tax authorities and on the payer (sub-sections (6) and (7)). 'Specified person' is defined in the Explanation by reference to the payer's own preceding-year turnover, gross receipts or absence of business or professional income.
Not a judicial route. The section is a collection provision aimed at a market that leaves no conventional paper trail, and its design follows from that. The charge is on the payer rather than the exchange, because the class of payers is wider than the class of intermediaries; the in-kind proviso exists because a barter of one asset for another produces no cash from which one per cent can be withheld, and Parliament's answer was to shift the payer's obligation from 'deduct' to 'do not release until the tax is paid'. The Explanation's 'specified person' is a de minimis category of small and non-business payers, and the relief given to that category is procedural as well as monetary — a higher threshold and freedom from the TAN requirement. Sub-section (4) exists because a transaction through an e-commerce operator would otherwise attract s.194-O as well; the tie is broken in favour of the VDA-specific provision. The power in sub-sections (6) and (7) is unusually strong: guidelines issued under it are expressed to bind the authorities and the payer alike, which is why the Board's circulars, and not only the section, govern exchange-level and peer-to-peer compliance. In the words reproduced by the source cited on this page: "(3) Notwithstanding anything contained in sub-section (1), no tax shall be deducted in a case, where— (a) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or (b) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year."
It was decided by the CBDT Circulars & Instructions on 2022-07-01 and is reported as Income-tax Act 1961, s.194S; inserted by the Finance Act 2022 (Act No. 6 of 2022), w.e.f. 1-7-2022; sub-section (2) substituted in part by the Finance Act 2025 (Act No. 7 of 2025), w.e.f. 1-4-2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 194S, section 2(47A), section 194-O, section 203A, section 206AB, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Tax is to be deducted at one per cent of the sum, at the time of credit to the resident's account or at the time of payment by any mode, whichever is earlier (sub-section (1)). Where the consideration is wholly in kind or in exchange of another virtual digital asset with no part in cash, or is partly in cash and partly in kind with the cash part insufficient to meet the liability, the payer must ensure before releasing the consideration that the tax required to be deducted has been paid (proviso). Section 203A does not apply to a specified person (sub-section (2), as it stands after 1 April 2025; before that date the sub-section referred to sections 203A and 206AB). No tax is deducted where the consideration is payable by a specified person and its value or aggregate value does not exceed fifty thousand rupees during the financial year, or is payable by any other person and does not exceed ten thousand rupees during the financial year (sub-section (3)). Where both this section and s.194-O apply, tax is deducted under sub-section (1) (sub-section (4)). A credit to a suspense account or any other account is deemed a credit to the payee (sub-section (5)). The Board may, with the prior approval of the Central Government, issue guidelines for removing difficulties, and those guidelines, laid before each House of Parliament, are binding on the income-tax authorities and on the payer (sub-sections (6) and (7)). 'Specified person' is defined in the Explanation by reference to the payer's own preceding-year turnover, gross receipts or absence of business or professional income. It arises in Crypto & Virtual Digital Assets and TDS Defaults matters, on section 194S, section 2(47A), section 194-O, section 203A, section 206AB of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Work out whether the PAYER is a 'specified person' on the Explanation — it turns on the payer's own turnover or gross receipts in the immediately preceding financial year, or on his having no business or professional income at all — and apply the Rs 50,000 threshold only if he is; otherwise the threshold is Rs 10,000. Test the threshold on the value or AGGREGATE value of consideration during the financial year, not transaction by transaction. Deduct at the earlier of credit or payment, and treat a credit to a suspense account or any similarly named account as a credit to the payee (sub-section (5)). For a swap or any consideration wholly or partly in kind, do not release the consideration until you have satisfied yourself the tax has been paid, and keep the evidence — the proviso puts that burden on the payer. Where a transaction could fall under both s.194S and s.194-O, deduct under s.194S: sub-section (4) says so notwithstanding s.194-O. If the payer is a specified person, do not chase a TAN — sub-section (2) disapplies s.203A. Check the current wording of sub-section (2) for the year concerned, because the reference to s.206AB was removed with effect from 1 April 2025. Read the Board's guidelines issued under sub-section (6) before advising on exchange-level or peer-to-peer compliance, and check for yourself which circulars they are and what they say — sub-section (7) makes a guideline issued under sub-section (6) binding on the authorities and on the payer, so the circular governs as much as the section. The library holds separate entries for CBDT Circulars 13/2022 and 14/2022; neither was read on this pass and nothing here states their contents.
Still good law. In force from 1 July 2022. The only amendment located is in sub-section (2): the Department's Year-2025 page records 'Sub. for "sections 203A and 206AB" by Act No. 7 of 2025, w.e.f. 1-4-2025', so from 1 April 2025 the sub-section disapplies only s.203A to a specified person. The rate, the thresholds and the in-kind proviso are unchanged across the Year-2022, Year-2023 and Year-2025 versions of the page. A search of indiankanoon for Tribunal decisions on s.194S returned exactly one order, Raunaq Prakash Jain v ITO (ITAT Jodhpur, 28 November 2024), which the library already holds; there is effectively no case law on the section. I did NOT read CBDT Circulars 13/2022 or 14/2022 on this pass and I did not check the corresponding provision of the Income-tax Act 2025. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Statutory entry. 'tier' is 'cbdt' because the library's tier vocabulary has no value for a statutory entry. 'decided_on' is the date the section takes effect, 1 July 2022, not a date of decision. Three versions of the Department's page were read: the base page (Year stamp 2022), /w/section-194s-1 (Year 2023) and /w/section-194s-4 (Year 2025). The base page carries footnote 30, 'Ins. by the Act No. 06 of 2022, w.e.f. 1-7-2022', and footnote 31 listing the relevant rules and forms (rules 30, 31, 31A, 31ACB, 37BA and 114-I; Form Nos. 16A, 24G, 26A, 26AS, 26B, 26Q, 27A and 27Q). The Year-2025 page differs from the earlier two in one respect only, sub-section (2), and carries the footnote 'Sub. for "sections 203A and 206AB" by Act No. 7 of 2025, w.e.f. 1-4-2025'. IMPORTANT LIMIT ON THIS ENTRY: I could NOT open CBDT Circular 13/2022 or Circular 14/2022 on this pass. Every URL pattern I tried on incometaxindia.gov.in returned 404 (recorded in NOTES-B47.md), and I have therefore stated nothing whatever about their contents, thresholds or worked examples. The number and date of Circular 13/2022 ('CBDT Circular No. 13/2022 dated 22.06.2022') are taken from the text of the ITAT Surat order in Ankit Kabra v ITO, which I did read; Circular 14/2022 is named without a date because I did not read one this pass. The library already holds separate entries for both circulars. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Tax is to be deducted at one per cent of the sum, at the time of credit to the resident's account or at the time of payment by any mode, whichever is earlier (sub-section (1)). Where the consideration is wholly in kind or in exchange of another virtual digital asset with no part in cash, or is partly in cash and partly in kind with the cash part insufficient to meet the liability, the payer must ensure before releasing the consideration that the tax required to be deducted has been paid (proviso). Section 203A does not apply to a specified person (sub-section (2), as it stands after 1 April 2025; before that date the sub-section referred to sections 203A and 206AB). No tax is deducted where the consideration is payable by a specified person and its value or aggregate value does not exceed fifty thousand rupees during the financial year, or is payable by any other person and does not exceed ten thousand rupees during the financial year (sub-section (3)). Where both this section and s.194-O apply, tax is deducted under sub-section (1) (sub-section (4)). A credit to a suspense account or any other account is deemed a credit to the payee (sub-section (5)). The Board may, with the prior approval of the Central Government, issue guidelines for removing difficulties, and those guidelines, laid before each House of Parliament, are binding on the income-tax authorities and on the payer (sub-sections (6) and (7)). 'Specified person' is defined in the Explanation by reference to the payer's own preceding-year turnover, gross receipts or absence of business or professional income.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
I borrowed money to buy crypto. Can I deduct the interest against my 115BBH income?
I sold Bitcoin in FY 2020-21, before the VDA regime — capital gains or income from other sources?
Our purchase attracts both 194Q and 206C(1H). Do we deduct as buyer or does the seller collect?
I trade crypto on an exchange. Who deducts the 1% under s.194S, on what amount, and what changes if a broker is in the chain?