No penal interest on TDS for crypto investors who failed to file the TDS return by May 31, 2023: CBDT

From July 2022, virtual digital assets (VDA) transfer made to a resident individual attracts tax deducted at source (TDS). The TDS deducted by the VDA purchaser must be reported using Form 26QE, which is a TDS challan-cum-statement form. If you have not filed this form within the stipulated timeline you need to pay penalties. However, since the form was not available in time, taxpayers could not file it within the deadline. Nonetheless, a penalty was imposed on these VDA purchasers for non-filing of Form 26QE. Acknowledging this lapse, the Central Board of Direct Taxes (CBDT) via an order dated March 7, 2024, directed to waive off the penalties imposed for not filing Form 26QE during a specified period.

“If a person transfers virtual digital assets (VDA) to a resident, TDS at 1% rate is required to be deducted and it is required to be reported in Form 26QE within 30 days from the end of the month in which such deduction is made,” says Mihir Tanna, associate director-direct tax, S.K Patodia LLP, a CA firm.

Also read: TDS on salary is not at fixed rate; know how tax is calculated and deducted by employer.

For which taxpayers the penal interest has been waived off

CBDT has specified in the order that the penalty is being waived only for those taxpayers who failed to file Form 26QE within a specified period and also subject to a condition. The condition is that these specified taxpayers should have filed Form 26QE by May 30,2023. The period for which the TDS should have been deducted is July 1, 2022 – February 28, 2023.

“It has come to the notice that specified persons who deducted tax under section 194S during the period from 01.07.2022 to 31.01.2023, could not file Form 26QE and pay corresponding TDS on or before the due date, due to unavailability of Form 26QE. Further, the specified persons who deducted tax under section 194S during the period from 01.02.2023 to 28.02.2023 had insufficient time to file Form 26QE and pay corresponding TDS thereon. Fee levied under section 234E and/or interest charged under section 201(1A) (ii) in such cases for the period up to 30.05.2023, shall be waived,” said CBDT in its order dated March 7, 2024.

Also read: How much income tax deduction is available on bank FD, RD and savings account interest.

Which type of penalties has been waived off?

In the order, CBDT said that two types of penalties are being waived off for eligible taxpayers. They are:

• Section 234E: Rs 200 per day up to maximum of the amount due under TDS is levied as penalty under section 234E.
• Section 201(1A) (ii): 1.5% per month penal interest is levied when TDS was deducted but not deposited with the government.

“There are two types of penal interest under section 201 (1A) – 1% per month when TDS was not deducted when required or 1.5% per month if TDS was deducted but not deposited. Hence if a taxpayer was levied penal interest under section 201 (1A) (i) i.e. 1% per month then it would not be waived off,” says Tanna.

Starting from July 2022, any transfer of virtual digital assets (VDA) to a resident individual will now attract tax deducted at source (TDS). The TDS amount deducted by the VDA purchaser must be reported using Form 26QE, which serves as a TDS challan-cum-statement form. Failure to file this form within the specified timeline will result in penalties. However, due to the unavailability of the form on time, taxpayers were unable to meet the deadline for filing. Despite this, penalties were still imposed on VDA purchasers for not submitting Form 26QE. Recognizing this issue, the Central Board of Direct Taxes (CBDT) issued an order on March 7, 2024, to waive off the penalties imposed for non-filing of Form 26QE during a specific period.

“If an individual transfers virtual digital assets (VDA) to a resident, a TDS rate of 1% must be deducted and reported in Form 26QE within 30 days from the end of the month in which the deduction was made,” explains Mihir Tanna, associate director-direct tax at S.K Patodia LLP, a CA firm.

Also read: TDS on salary is not at fixed rate; know how tax is calculated and deducted by employer.

Who are the taxpayers eligible for waived penal interest?

In the CBDT order, it has been specified that the penalty waiver applies only to taxpayers who failed to file Form 26QE within a certain period, subject to a condition. The condition states that these taxpayers should have filed Form 26QE by May 30, 2023. The period for which the TDS should have been deducted is from July 1, 2022, to February 28, 2023.

“It has been noticed that specified individuals who deducted tax under section 194S from July 1, 2022, to January 31, 2023, were unable to file Form 26QE and pay the corresponding TDS by the due date, due to the unavailability of the form. Additionally, individuals who deducted tax under section 194S from February 1, 2023, to February 28, 2023, did not have sufficient time to file Form 26QE and pay the corresponding TDS. Any fees charged under section 234E and/or interest imposed under section 201(1A) (ii) for the period up to May 30, 2023, will be waived,” stated CBDT in its order dated March 7, 2024.

Also read: How much income tax deduction is available on bank FD, RD, and savings account interest.

Which penalties have been waived off?

The CBDT order mentions that two types of penalties are being waived off for eligible taxpayers. They are:

• Section 234E: A penalty of Rs 200 per day up to the maximum amount due under TDS is imposed under section 234E.
• Section 201(1A) (ii): Penal interest of 1.5% per month is charged when TDS was deducted but not deposited with the government.

“There are two types of penal interest under section 201 (1A) – 1% per month when TDS was not deducted when required or 1.5% per month if TDS was deducted but not deposited. Therefore, if a taxpayer was subjected to penal interest under section 201 (1A) (i) at 1% per month, it would not be waived off,” explains Tanna.