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.

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“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.

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.

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.

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