Under Section 194S of the Income-tax Act, the buyer of the Virtual Digital Asset (VDA) is the person responsible for deducting 1% TDS at the time of payment of consideration or credit to the seller's account, whichever is earlier. This is fundamentally different from how exchange trades work — on Indian centralised exchanges (CoinDCX, WazirX, ZebPay, Bitbns), the exchange acts as the deductor on behalf of users, so individual buyers don't have to file 26QE. But in a true P2P trade — Binance P2P, Bybit P2P, KuCoin P2P, OTC Telegram / Discord transactions, direct wallet-to-wallet swaps, or buying crypto from a friend via UPI — the platform either does not deduct or does not exist as an intermediary, so the obligation reverts to the buyer. CBDT Circular 13/2022 dated 22 June 2022 provides further operational clarifications: where the consideration flows through an exchange that is neither the buyer nor the seller but an intermediary, the exchange may agree to deduct (typical of Indian centralised exchanges); where the trade is genuinely peer-to-peer with no intermediary deducting, the buyer is fully liable. Practical implications: an Indian resident buying USDT on Binance P2P from another user via UPI must (a) collect the seller's PAN, (b) compute 1% on the INR consideration, (c) deduct (i.e., pay 99% to seller) or pay 100% and deposit the equivalent 1% from own funds, (d) file Form 26QE on the income-tax portal within 30 days from end of the month of payment, and (e) issue Form 16E to the seller within 15 days of 26QE due date. Failure exposes the buyer to interest under Sec 201(1A), penalty under Sec 271C equal to the TDS amount, and possible prosecution under Sec 276B for wilful default. The seller has no deduction obligation but must report the gross sale in Schedule VDA and claim the 1% TDS credit.

Section 194S applies two threshold limits based on the buyer's category — both computed on aggregate consideration during the financial year, not per-transaction: (a) ₹50,000 per FY for "specified persons" — defined as: (i) an individual or HUF whose total sales / gross receipts / turnover from business does not exceed ₹1 crore in the immediately preceding FY (₹10 crore where 95% of receipts are non-cash), (ii) an individual or HUF whose total receipts from profession do not exceed ₹50 lakh in the preceding FY, or (iii) a person not having any income under the head "Profits and gains of business or profession". This category captures most retail crypto buyers — salaried individuals, small business owners, professionals below 44AB threshold, students, retirees. (b) ₹10,000 per FY for all other persons — companies, partnership firms, LLPs, large business / professional entities crossing the 44AB threshold. Threshold computation: aggregated across all P2P crypto purchases in the FY by the same buyer, not per-counterparty or per-VDA. Once the threshold is crossed, TDS becomes mandatory on every subsequent purchase till the FY ends — earlier sub-threshold trades are not retrospectively deducted, but if the very first trade in the FY exceeds the threshold, TDS applies on that trade. Crypto-to-crypto P2P swaps — the FMV in INR at trade time is the consideration for threshold computation. Note: the 1% TDS rate applies to the entire consideration on triggering trades, not just the amount above the threshold. Multiple P2P platforms / OTC counterparties — aggregation is at the buyer's PAN level, not platform level. Our practice maintains a running threshold tracker across all the buyer's P2P channels to ensure accurate trigger-point identification.

Form 26QE is the challan-cum-statement for TDS under Section 194S — designed for taxpayers without a TAN (specified persons / individuals / HUFs). Unlike regular TDS where the deductor needs a TAN, Section 194S allows specified persons to use their PAN directly via Form 26QE. Filing process: Step 1 — Log in to the income-tax e-filing portal (incometax.gov.in) using PAN credentials; Step 2 — Navigate to "e-File" → "e-Pay Tax" → select "Tax Deducted at Source (TDS) on transfer of Virtual Digital Asset"; Step 3 — Form 26QE opens; fill in: (a) buyer's PAN, name, address, contact; (b) seller's PAN, name, address; (c) date of agreement / payment; (d) total consideration in INR (or FMV for crypto-crypto); (e) TDS amount (1% or 5% if no PAN); Step 4 — Pay via net banking / debit card / authorised bank challan; Step 5 — Download the acknowledgement (Form 26QE) — this serves as the proof of TDS deposit. Filing timeline: Within 30 days from end of the month in which TDS is deducted (i.e., the month of payment to the seller). For example, a P2P buy on 15 January 2026 — Form 26QE must be filed by 28 February 2026. Form 16E — The TDS certificate to be issued to the seller — generated and downloaded from TRACES portal within 15 days from the 26QE due date. The seller uses Form 16E (and the Form 26AS / AIS reflection) to claim TDS credit in their ITR Schedule VDA against the 30% Sec 115BBH liability — refund arises if 1% TDS exceeds the final tax. Common errors to avoid: (i) filing under Form 26QB (property TDS) by mistake — 26QE is the correct VDA form; (ii) treating the trigger as transaction-wise instead of FY-cumulative; (iii) missing the 30-day deposit window — interest at 1.5% per month applies; (iv) failing to issue Form 16E to seller — exposes the seller to denial of TDS credit in their ITR.

If the seller in a P2P crypto trade does not furnish a valid PAN — or furnishes an inactive / inoperative PAN (linked to non-Aadhaar status) — Section 206AA overrides Section 194S and mandates a higher TDS rate of 5% (or the rate under 194S — 1%, whichever is higher; 5% applies). This is a meaningful risk in P2P trades because: (a) anonymous / pseudonymous Telegram and Discord OTC desks routinely refuse PAN sharing; (b) foreign sellers on Binance P2P / KuCoin P2P may not have an Indian PAN; (c) some sellers provide PAN that turns out to be inactive due to PAN-Aadhaar non-linking. Practical compliance approach: (a) Pre-trade PAN verification — request seller's PAN before the trade and verify the active status using the income-tax portal's "Verify PAN" service; (b) Withhold at 5% — if no PAN or inactive PAN, deduct 5% upfront and document the reason in trade records; (c) Refuse the trade — for high-value P2P, the prudent approach is to refuse non-PAN counterparties altogether to avoid disputes over the higher rate; (d) Foreign sellers — for non-residents without Indian PAN, the trade has additional FEMA / LRS implications beyond just Sec 206AA; Form 15CA / 15CB may be required if the consideration flows out of India. Form 26QE under Sec 206AA — file 26QE with the seller's available identification (passport / foreign tax ID), explicitly indicating no-PAN status; the 5% TDS amount is deposited under the buyer's PAN. Seller's downside — without a valid PAN, the seller cannot claim the 5% TDS credit in their ITR (they may not even file an Indian ITR), so the 5% effectively becomes an irrecoverable cost; this often becomes a commercial point of negotiation. Our practice routinely advises clients to make PAN verification the first step of any P2P crypto trade before committing to the trade, especially for trades above ₹1 lakh.

Yes — Section 194S applies to any "transfer of a Virtual Digital Asset", and crypto-to-crypto trades are doubly affected because each side of the swap is a separate transfer. If party A swaps 1 BTC for 30 ETH directly with party B (whether on Binance P2P, a wallet-to-wallet OTC, or a DEX): (a) From A's perspective: A is transferring BTC and receiving ETH — A is the seller of BTC and the buyer of ETH; (b) From B's perspective: B is transferring ETH and receiving BTC — B is the seller of ETH and the buyer of BTC. TDS implications: Both parties have a TDS deduction obligation as buyers — A on the ETH received (1% on FMV in INR), B on the BTC received (1% on FMV in INR). The consideration is computed at the FMV in INR at the time of swap using the prevailing exchange index price. How is the 1% deducted in-kind? In practice, for wallet-to-wallet swaps where neither party can withhold INR, the parties may agree to send 99% of the agreed VDA quantity, with the deducting party depositing the equivalent 1% in INR via Form 26QE — this creates a real cash-flow burden on both sides, often to the value of the entire 1% on each side. CBDT Circular 13/2022 specifically addresses this: where the consideration is wholly or partly in kind (another VDA), the person responsible (buyer) ensures that tax has been paid before the trade is executed; the buyer arranges for INR deposit of the 1% TDS on the FMV of the VDA received. Sec 115BBH overlay: Each leg is also a "transfer" for the 30% tax — A pays 30% on (FMV of ETH received - cost of BTC); B pays 30% on (FMV of BTC received - cost of ETH). Schedule VDA records both legs separately. Practical reality — many P2P crypto-to-crypto traders ignore both the TDS and 115BBH leg of the inbound side, recording only the eventual fiat exit; this creates significant exposure on AIS / scrutiny matching. Our practice maps every swap leg to both Sec 194S TDS and Sec 115BBH tax, building the audit trail.

Failure to comply with Section 194S triggers a cascading set of consequences for the buyer / deductor: (a) Interest under Sec 201(1A) — for non-deduction: 1% per month from the date TDS was deductible to the date of actual deduction; for deduction-but-non-deposit: 1.5% per month from the date of deduction to the date of actual deposit; computed monthly and not annually pro-rata, so even a 1-day delay into the next month attracts a full month's interest; (b) Penalty under Sec 271C — equal to the amount of TDS not deducted; this is a discretionary but often-imposed penalty by the AO; defence under Sec 273B requires showing "reasonable cause" — bona fide misunderstanding of the threshold or counterparty PAN unavailability are sometimes accepted; (c) Disallowance under Sec 40(a)(ia) — 30% of the consideration is disallowed in computing business income where the buyer is a business / professional treating the crypto purchase as a business expense / inventory; reduces to nil if TDS is deposited later (but interest still applies); (d) Prosecution under Sec 276B — for wilful failure to pay deducted TDS to the government; rigorous imprisonment 3 months to 7 years plus fine; reserved for egregious / repeated cases; (e) Notice under Sec 201 — formal default order treating buyer as "assessee in default"; recovery proceedings, attachment of bank accounts, and adjustment against refunds; (f) AIS / 26AS scrutiny — UPI / IMPS transfers to crypto counterparty bank accounts visible to ITD, AIS feeds catching unreported P2P purchases. Voluntary cure approach: (i) compute the missed TDS for each P2P trade; (ii) deposit via Form 26QE with applicable interest under Sec 201(1A); (iii) issue Form 16E to seller with delay reason; (iv) document "reasonable cause" for any 271C defence — bona fide misunderstanding of P2P obligation, counterparty PAN unavailability, etc.; (v) for the income side, file ITR-U under Sec 139(8A) to disclose any unreported VDA gain. Our default-cure practice handles the full sequence — quantification, deposit, certificate issuance, and 271C penalty defence representation.

As a P2P seller of crypto, the 1% TDS deducted by the buyer under Section 194S is a credit in your name, claimable in your ITR for the relevant FY against your final tax liability under Section 115BBH (30% on net VDA gain). The mechanics: Step 1 — Confirm credit in Form 26AS / AIS — once the buyer files Form 26QE and 16E, the TDS credit reflects in the seller's Form 26AS and AIS within 7-10 days; verify the PAN, amount, and date match your trade records; Step 2 — If credit is missing — request Form 16E from the buyer; if buyer hasn't filed 26QE, follow up; if buyer is unresponsive, escalate via written request — the seller cannot file 26QE on their own behalf as it's the buyer's obligation; Step 3 — In the ITR (ITR-2 or ITR-3 depending on profile) — fill Schedule VDA with each transfer (date of acquisition, date of transfer, cost, sale value, gain) — the Schedule VDA total feeds into the Sec 115BBH tax computation at 30%; Step 4 — In the TDS Schedule of the ITR — claim the 1% TDS credit using the buyer's PAN (since 26QE is PAN-based, not TAN-based for specified person buyers) — the system maps to Form 26AS automatically; Step 5 — Final tax computation — if 1% TDS exceeds the 30% liability (which happens when net gain is small relative to gross consideration, or when there are losses on other VDAs that the seller wrongly assumes set off), the excess is refundable; if 30% exceeds 1% (typical), the seller pays self-assessment tax on the difference. Refund timeline — post ITR processing under Sec 143(1), refund issued within 30-60 days for a clean ITR; longer for ITRs with audit / scrutiny flags. Common pitfall — many P2P sellers ignore the gross sale and only report net P&L; the 1% TDS in 26AS without matching gross sale in Schedule VDA generates a 143(1) intimation for under-reporting. Refund optimisation — for sellers with consistent crypto losses (which are not deductible), the 1% TDS often becomes the only recoverable element; correct Schedule VDA filing is essential to recover this. Our seller-side filing practice covers Schedule VDA reconciliation, 26AS / AIS matching, TDS claim, and refund tracking through the income-tax portal.