Published 21 October 2026
Most crypto is bought on an exchange, and most buyers never think of themselves as deductors. The law makes them one. Whoever pays a resident for a virtual digital asset must deduct 1 per cent of the price as tax. If the price is paid in another token, the payer must make sure the tax is paid before handing it over. On an exchange the buyer and seller do not know each other. So the law lets the exchange take the obligation over, and the 2026 Rules give it its own quarterly statement. This guide covers who deducts, on what, when the deduction is excused, the forms and due dates, and what changed on 1 April and 1 October 2026.
Which Act applies
The test is the date of credit or payment.
- Credited or paid up to 31 March 2026: section 194S of the Income-tax Act, 1961, with the Income-tax Rules, 1962.
- Credited or paid from 1 April 2026: section 393(1) [Table: Sl. No. 8(vi)] of the Income-tax Act, 2025, read with Note 6 to that sub-section and with section 393(4) [Table: Sl. No. 12]. The relevant rules are 215, 218 and 219 of the Income-tax Rules, 2026.
Section 536(2)(b) of the 2025 Act keeps alive any obligation or liability already incurred under the 1961 Act. A deduction missed in March 2026 is therefore still dealt with under section 194S.
Who deducts, and on what
The payer. Section 194S(1) applies to “any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset”. Column C of Sl. No. 8(vi) says simply “Any person”. The duty is not confined to businesses. It falls on an individual buyer too, subject to the thresholds below.
The payee. The seller must be a resident. Section 393(1) applies to sums paid “to a resident”. Payments to non-residents fall under section 195 of the 1961 Act and section 393(2) of the 2025 Act.
The rate. One per cent “of such sum” (section 194S(1)), or “1%” in column D of Sl. No. 8(vi).
The time. Tax is deducted at the time of credit to the payee’s account or at the time of payment, “whichever is earlier” (section 194S(1); section 393(1)©). A credit to a suspense account, or an account by any other name, is treated as a credit to the payee (section 194S(5); section 393(11)).
No PAN. If the seller does not furnish a valid PAN, the rate is the highest of the rate in the section, the rate in force and 20 per cent (section 206AA; section 397(2)(b)(i)).
Consideration in kind or in another token
A swap of one token for another has no cash from which to deduct. The proviso to section 194S(1) deals with consideration that 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, where the cash is not enough to cover the tax.
In either case, the payer “shall, before releasing the consideration, ensure that tax required to be deducted has been paid”.
Note 6 to section 393(1) of the 2025 Act keeps the rule for Sl. No. 8(vi): where consideration “is wholly in kind” or is partly in cash that is not sufficient, the payer must “ensure that the tax required to be deducted has been paid, before releasing such consideration”. There is one oddity of drafting. Note 6(a)(i), on an exchange of one virtual digital asset for another “where there is no part in cash”, is expressed to apply “in respect of serial number 8(iv)”, which is the business perquisites entry. A token-for-token swap is still consideration in kind, so clause (ii) covers it on its words.
The Finance Act, 2026 substituted section 276B of the 1961 Act with effect from 1 March 2026. The new section makes failure to pay or ensure payment of tax under the proviso to section 194S(1) a prosecutable offence, excluding consideration “which is wholly in kind”. Where the tax involved does not exceed Rs 10 lakh, the punishment is fine only.
When no deduction is needed
There are two thresholds, depending on who pays. Both are counted for the year: the financial year under section 194S(3), the tax year under section 393(4) [Table: Sl. No. 12].
| Payer | No deduction if the year’s consideration does not exceed |
|---|---|
| A “specified person” | Rs 50,000 |
| Anyone else | Rs 10,000 |
A specified person is an individual or HUF who either:
- has no income under the head “Profits and gains of business or profession”; or
- has business turnover of not more than Rs 1 crore, or professional gross receipts of not more than Rs 50 lakh, in the year before the year of transfer.
This is the Explanation to section 194S, and column C(a) of Sl. No. 12 of section 393(4).
The threshold looks at the total paid during the year. Once the total crosses the limit, column D of Sl. No. 8(vi) reads “Threshold limit: Nil”, and section 393(1)(a) applies the rate to “the entire amount”.
Overlap with e-commerce TDS. Where section 194-O, or Sl. No. 8(v) of section 393(1), would also apply, the virtual digital asset provision takes precedence (section 194S(4); Note 4 to section 393(1)).
TAN
Section 194S(2) switched off the TAN requirement in section 203A for a specified person. Under the 2025 Act, section 397(1)© does the same. The Finance Act, 2026 substituted that clause with effect from 1 October 2026:
- Before 1 October 2026, section 397(1)©(ii) exempted “a person referred to in section 393(4) [Table: Sl. No. 12.C(a)]” outright.
- From 1 October 2026, the exemption covers that person only “in respect of a transaction where he is required to deduct tax on consideration for transfer of a virtual digital asset under section 393(1) [Table: Sl. No. 8(vi)]”.
The effect is that an individual buyer who is a specified person can deduct and pay this tax on PAN alone. If that person deducts tax under some other provision, the TAN requirement applies to that deduction.
Paying the tax and the statement
Under the 2026 Rules, the deduction is paid and reported together. Rule 218(3)(d) requires the tax deducted under Sl. No. 8(vi) to be paid “within a period of thirty days from the end of the month in which the deduction is made”. The payment must be “accompanied by a challan-cum-statement in Form No. 141”. Rule 219(5)(d) repeats the Form No. 141 requirement “irrespective of anything contained in sub-rule (1) or (2) or (4)”. The seller’s certificate is Form No. 132, due within fifteen days from the due date of Form No. 141 (rule 215, Table Sl. No. 3(d)).
Rule 219(1), Table Sl. No. 3 also lists section 393(1) generally against the quarterly statement in Form No. 140. Rule 219(5) is expressed to override it for Sl. No. 8(vi). On the text of the rules, Form No. 141 is therefore the statement for every deduction under Sl. No. 8(vi). The rules do not limit it to deductors without a TAN.
For deductions under section 194S up to 31 March 2026, the payment and statement rules of the Income-tax Rules, 1962 apply. These are covered in Deducting and Depositing TDS and Quarterly TDS and TCS Statements.
When the exchange pays instead: Form No. 142
Section 194S(6) let the Board issue guidelines to remove difficulties, with the Central Government’s approval. Section 194S(7) made them binding on the income-tax authorities and on the payer. The 2025 Act puts the power in section 400(2). The Finance Act, 2026 substituted that sub-section with effect from 1 April 2026. The guidelines are now expressly “binding on the income-tax authorities and on the person liable to deduct or, as the case may be, collect income-tax”, and must be laid before Parliament. Under section 536(2)(j), a circular or direction issued under the 1961 Act continues under the corresponding provision of the 2025 Act, so far as it is not inconsistent.
Rule 219(2) assumes such guidelines exist. It provides that where, under guidelines issued under section 400(2) read with Sl. No. 8(vi), “the exchange has agreed to pay tax in relation to a transaction of transfer of a virtual digital asset, owned by it, as an alternative to tax required to be deducted by the buyer”, the exchange delivers a quarterly statement of those transactions in Form No. 142. Under rule 219(3), the statement also gives particulars of “the amount paid or credited, on which tax was not deducted in accordance with guidelines”. An “exchange” is a person operating a platform “which matches buy and sell trades and execute the same” on it (rule 219(9)).
Form No. 142 is a quarterly statement, unlike Form No. 141. It follows the due dates in rule 219(4): 31 July, 31 October and 31 January for the first three quarters, and 31 May after the year end for the quarter ending 31 March.
The guidelines themselves set the conditions on which an exchange may take the obligation over. The Tribunal’s order in Ankit Kabra v. ITO (ITAT Surat, 23 December 2025) records them as CBDT Circular No. 13/2022 dated 22 June 2022. This guide could not retrieve a primary copy of that circular, and does not summarise its terms.
If the deduction is missed or late
The consequences are the same as for any other TDS default. They are covered in detail in Deducting and Depositing TDS:
- interest under section 201(1A) of the 1961 Act, now section 398(3) of the 2025 Act;
- treatment as an assessee in default; and
- a late fee for the statement under section 234E of the 1961 Act, now section 427 of the 2025 Act.
Corrections are made through TRACES, as explained in Correction Statements and TRACES Defaults.
The seller’s side
The seller claims credit for the 1 per cent in the return. The deduction does not settle the tax. The income is taxed at 30 per cent on the gain under section 115BBH, or Sl. No. 4 of section 194(1), as explained in Tax on Crypto and Other Virtual Digital Assets. The CBDT’s validation rules for assessment year 2026-27 flag a return that claims virtual digital asset TDS but does not offer the matching income. The validation rules for ITR-3 describe this as a case where “the corresponding income from VDA has not been offered to tax or is not offered to tax completely”.
Summary
- Fix the Act by the date of credit or payment. Up to 31 March 2026, section 194S applies. From 1 April 2026, section 393(1) [Table: Sl. No. 8(vi)] applies.
- Check whether the seller is resident, and whether the year’s payments exceed Rs 50,000 (for a specified person) or Rs 10,000 (for anyone else).
- Deduct 1 per cent at credit or payment, whichever is earlier, or 20 per cent if the seller has no valid PAN.
- Where the consideration is in kind, or in another token, make sure the tax is paid before releasing it.
- From 1 April 2026, pay the tax with Form No. 141 within 30 days from the end of the month. Issue Form No. 132 within 15 days of that due date.
- An exchange that has taken the obligation over under the section 400(2) guidelines files Form No. 142 each quarter instead.
The next guide, Reporting Crypto: Schedule VDA and the AIS, covers how these transactions are reported in the return and what the department already knows about them.