Section 194S: TDS on Virtual Digital Asset (Crypto) Payments

1% TDS applies under Section 194S of the Income-tax Act, 1961 on consideration paid for the transfer of a virtual digital asset (VDA — crypto), effective 1 July 2022, with an annual threshold of ₹50,000 for "specified persons" (individuals/HUFs) and ₹10,000 for every other payer, including companies. A transfer through a recognised exchange is handled by the exchange itself; a direct purchase from an individual makes the company the deductor. Section 194S is about the payment for a VDA transfer — it is separate from the 30% tax on the company's own crypto gains under Section 115BBH.

New w.e.f. 01-07-2022: Section 194S made the buyer of a virtual digital asset the deductor at 1%. The ₹50,000/₹10,000 thresholds depend on whether the payer is a "specified person," and transfers through a recognised exchange are handled by the exchange itself.

What the law actually requires

Section 194S was inserted by the Finance Act, 2022 with effect from 1 July 2022. It makes the buyer of a VDA responsible for deducting 1% TDS at the time of credit or payment of the consideration for the transfer. The definition of a virtual digital asset in Section 2(47A) is wide — it covers cryptocurrencies, NFTs and other digital assets — so the obligation is not limited to "Bitcoin."

Specified person vs other person

"Specified person" is a defined term: an individual or HUF whose turnover or gross receipts from business in the preceding year did not exceed ₹1 crore, or from a profession did not exceed ₹50 lakh — essentially an individual/HUF not required to get a tax audit under Section 44AB. Everyone else — a company, LLP, firm, or an individual who is audit-liable — is an "other person."

The threshold is per financial year, per VDA transferor (seller). A company that buys crypto worth ₹8,00,000 from an individual crosses ₹10,000 many times over and deducts 1% on the full consideration.

Exchange trades: the exchange deducts, not you

The section's second proviso shifts responsibility where the transfer happens through a recognised exchange or platform: the exchange deducts the TDS, not the buyer. So a company that buys and sells crypto through an Indian exchange generally does not need to separately deduct 194S on each trade — the exchange withholds and reports it. This is the position CBDT designed for retail and corporate participation through regulated platforms.

Direct purchases and payments in crypto

The cases where the company is itself the deductor are the ones to plan for:

• Buying VDA directly from an individual. A company that buys crypto from a person (not through an exchange) is the person responsible to deduct 1% TDS under 194S.
• Paying a vendor or employee by transferring crypto. Where the company settles an invoice in crypto, the VDA changes hands for consideration.

⚠️ — for payments made in crypto (salary or vendor settlement), confirm whether the company, the recipient, or both owe a 194S obligation, and the correct TDS statement form (the section-specific quarterly statement is Form 26QE; confirm the form for a company paying an individual directly before filing).

Worked example: Nova Ventures Pvt Ltd

Nova Ventures Pvt Ltd (turnover ₹50 crore) holds crypto on its treasury. In FY 2025-26:

The most common mistake is the third row: founders treat the 194S TDS the exchange withheld on their buy as if it settles the tax on their gain. It does not. The 1% is an advance on the seller's tax; the 30% under Section 115BBH is a separate charge on Nova's own profit from the sale.

Practical implications

• Track VDA acquisitions seller-wise. The ₹50,000/₹10,000 threshold is per financial year per transferor. A company buying from the same individual repeatedly must watch the cumulative figure, not each trade.
• Keep exchange trades clean. Where you trade through a recognised exchange, obtain the exchange's TDS certificates (Form 26AS/TRACES will reflect the deduction under your PAN) and do not double-withhold.
• Crypto is not a "cashless" loop. Paying salaries or vendor bills in crypto does not remove TDS — it moves the TDS question into 194S territory (or, for salary, a valuation-and-withholding exercise under Section 192). before running any part of payroll through crypto.
• Gains are taxed at 30%, with no loss set-off. Section 115BBH allows no deduction for the cost of acquisition other than the acquisition value, and no set-off of losses from VDA against other income. A company with a ₹20 lakh crypto gain owes ₹6 lakh of tax before surcharge and cess.

FAQ

What is the 194S threshold for a company?
₹10,000 per financial year per transferor. A company is an "other person" under the section. Specified persons (non-audit-liable individuals/HUFs) get a ₹50,000 threshold.

Does the exchange deduct 194S on my trades?
Yes, where the transfer is through a recognised exchange or platform, the exchange is responsible for the deduction — the buyer does not deduct separately.

I bought crypto from an individual. Do I deduct TDS?
Yes. A direct purchase from an individual makes you the person responsible under 194S. Deduct 1% of the consideration and report it in the quarterly 194S statement. the exact form number.

Is my company's crypto trading gain subject to 194S?
No. 194S is TDS on the payment for a transfer. The gain itself is taxed at 30% under Section 115BBH, with no loss set-off — a separate charge that TDS does not replace.

Can I offset crypto losses against business income?
No. Section 115BBH explicitly disallows set-off of losses from VDA transfers against any other income. Losses on crypto do not reduce corporate tax.

What if the seller has no PAN?
Deduct at 20% under Section 206AA on the consideration. Collect and verify PANs before any direct VDA purchase.

Sources

• Section 194S, Income-tax Act 1961 (inserted by Finance Act 2022, w.e.f. 01-07-2022)
• Section 2(47A) (definition of virtual digital asset); Section 115BBH (30% tax on VDA gains)
• Sections 206AA, 44AB (audit threshold defining "specified person")

Use the TDS rate finder to confirm the section and rate before a VDA transaction. For a TDS compliance audit of your company, visit pvtltd.co.

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