CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194S — Tax Deduction on Transfer of a Virtual Digital Asset
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance Act, 2022 (w.e.f. 1 July 2022); new and untested.
Finance Act, 2026: No amendment to section 194S. (The substituted section 276B, effective 1 March 2026, cross-references the proviso to section 194S(1).)
Mechanism: The payer of consideration for transfer of a VDA to a resident deducts 1% above the threshold; for consideration in kind/VDA-for-VDA, tax must be ensured before release; collects against the section 115BBH charge.
Litigation profile: None. A 2022 insertion with no judicial authority — the candour rule applies.
A. SECTION COMMENTARY
Section 194S, inserted by the Finance Act, 2022 with effect from 1 July 2022, requires any person responsible for paying a resident any sum by way of consideration for the transfer of a virtual digital asset (VDA) to deduct tax at one per cent of the consideration, subject to the prescribed thresholds (₹50,000, or ₹10,000, depending on the class of payer). It is the collection counterpart of the special VDA charging regime in section 115BBH (introduced by the same Finance Act), which taxes income on the transfer of a VDA at a flat thirty per cent with no deduction of expenditure (other than cost of acquisition) and no set-off of losses.
Consideration in kind, and exchange transactions
The section anticipates the realities of the crypto market. Where the consideration is wholly in kind or in exchange for another VDA (or partly in cash insufficient to meet the tax), the person responsible for paying must ensure that tax has been paid in respect of the consideration before releasing it. The CBDT has issued guidelines (Circulars No. 13 of 2022 and No. 14 of 2022) addressing peer-to-peer transactions, transactions through exchanges, and VDA-for-VDA exchanges, allocating the deduction responsibility in each case.
Finance Act, 2026 cross-reference
While section 194S is not itself amended, the Finance Act, 2026 has substituted section 276B with effect from 1 March 2026; the substituted offence provision expressly references the obligation under the proviso to sub-section (1) of section 194S in relation to consideration for transfer of a VDA (excluding consideration wholly in kind). A failure to pay over tax referable to that proviso is thus squarely within the recast prosecution provision.
A new provision — candour
Section 194S is recent and untested; there is no judicial authority construing it. In candour, it is applied from its terms read with section 115BBH and the CBDT guidelines, and with the general default principles.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194S. (1) Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon:
Provided that in a case where the consideration for transfer of virtual digital asset is—
(a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or
(b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset.
(2) The provisions of section 203A shall not apply to a specified person.
(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.
(4) Notwithstanding anything contained in section 194-O, in case of a transaction to which the provisions of the said section are also applicable along with the provisions of this section, then, tax shall be deducted under sub-section (1).
(5) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.
(6) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the prior approval of the Central Government, issue guidelines for the purposes of removing the difficulty.
(7) Every guideline issued by the Board under sub-section (6) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person responsible for paying the consideration on transfer of such virtual digital asset.
Explanation.—For the purposes of this section "specified person" means a person,—
(a) being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
(b) being an individual or a Hindu undivided family, not having any income under the head "Profits and gains of business or profession".
C. AUTHORITIES
Candour rule observed: section 194S is a 2022 insertion with no judicial authority. Only the statutory scheme (with section 115BBH) and CBDT guidance are offered.
Statutory scheme and CBDT guidance
Charge under section 115BBH and the CBDT guidelines (Circulars 13/2022, 14/2022)
Principle: Section 194S collects against the special VDA charge in section 115BBH (flat 30%, only cost of acquisition deductible, no set-off of losses); the CBDT guidelines allocate the deduction responsibility for exchange-routed and VDA-for-VDA transactions and for consideration in kind.
Use: Locates the deduction within the VDA regime and resolves who deducts in exchange transactions.
Principle: The recast offence provision cross-references the obligation under the proviso to section 194S(1) (VDA consideration not wholly in kind); default referable to that proviso attracts prosecution under the substituted section 276B.
Use: Notes the only Finance Act, 2026 contact point with section 194S.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194S — Tax Deduction on Transfer of a Virtual Digital Asset
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance Act, 2022 (w.e.f. 1 July 2022); new and untested.
Finance Act, 2026: No amendment to section 194S. (The substituted section 276B, effective 1 March 2026, cross-references the proviso to section 194S(1).)
Mechanism: The payer of consideration for transfer of a VDA to a resident deducts 1% above the threshold; for consideration in kind/VDA-for-VDA, tax must be ensured before release; collects against the section 115BBH charge.
Litigation profile: None. A 2022 insertion with no judicial authority — the candour rule applies.
A. SECTION COMMENTARY
Section 194S, inserted by the Finance Act, 2022 with effect from 1 July 2022, requires any person responsible for paying a resident any sum by way of consideration for the transfer of a virtual digital asset (VDA) to deduct tax at one per cent of the consideration, subject to the prescribed thresholds (₹50,000, or ₹10,000, depending on the class of payer). It is the collection counterpart of the special VDA charging regime in section 115BBH (introduced by the same Finance Act), which taxes income on the transfer of a VDA at a flat thirty per cent with no deduction of expenditure (other than cost of acquisition) and no set-off of losses.
Consideration in kind, and exchange transactions
The section anticipates the realities of the crypto market. Where the consideration is wholly in kind or in exchange for another VDA (or partly in cash insufficient to meet the tax), the person responsible for paying must ensure that tax has been paid in respect of the consideration before releasing it. The CBDT has issued guidelines (Circulars No. 13 of 2022 and No. 14 of 2022) addressing peer-to-peer transactions, transactions through exchanges, and VDA-for-VDA exchanges, allocating the deduction responsibility in each case.
Finance Act, 2026 cross-reference
While section 194S is not itself amended, the Finance Act, 2026 has substituted section 276B with effect from 1 March 2026; the substituted offence provision expressly references the obligation under the proviso to sub-section (1) of section 194S in relation to consideration for transfer of a VDA (excluding consideration wholly in kind). A failure to pay over tax referable to that proviso is thus squarely within the recast prosecution provision.
A new provision — candour
Section 194S is recent and untested; there is no judicial authority construing it. In candour, it is applied from its terms read with section 115BBH and the CBDT guidelines, and with the general default principles.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194S. (1) Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon:
Provided that in a case where the consideration for transfer of virtual digital asset is—
(a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or
(b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset.
(2) The provisions of section 203A shall not apply to a specified person.
(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.
(4) Notwithstanding anything contained in section 194-O, in case of a transaction to which the provisions of the said section are also applicable along with the provisions of this section, then, tax shall be deducted under sub-section (1).
(5) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.
(6) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the prior approval of the Central Government, issue guidelines for the purposes of removing the difficulty.
(7) Every guideline issued by the Board under sub-section (6) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person responsible for paying the consideration on transfer of such virtual digital asset.
Explanation.—For the purposes of this section "specified person" means a person,—
(a) being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
(b) being an individual or a Hindu undivided family, not having any income under the head "Profits and gains of business or profession".
C. AUTHORITIES
Candour rule observed: section 194S is a 2022 insertion with no judicial authority. Only the statutory scheme (with section 115BBH) and CBDT guidance are offered.
Statutory scheme and CBDT guidance
Charge under section 115BBH and the CBDT guidelines (Circulars 13/2022, 14/2022)
Principle: Section 194S collects against the special VDA charge in section 115BBH (flat 30%, only cost of acquisition deductible, no set-off of losses); the CBDT guidelines allocate the deduction responsibility for exchange-routed and VDA-for-VDA transactions and for consideration in kind.
Use: Locates the deduction within the VDA regime and resolves who deducts in exchange transactions.
Finance Act, 2026 — substituted section 276B (w.e.f. 1 March 2026)
Principle: The recast offence provision cross-references the obligation under the proviso to section 194S(1) (VDA consideration not wholly in kind); default referable to that proviso attracts prosecution under the substituted section 276B.
Use: Notes the only Finance Act, 2026 contact point with section 194S.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.