TDS on Crypto P2P Transactions

Section 194S TDS Compliance for Peer-to-Peer Cryptocurrency Transfers — Buyer Obligations, Challan Deposit, and Form 26QE

When cryptocurrency is bought and sold directly between two individuals — without going through a registered exchange — the exchange platform cannot deduct TDS. In such peer-to-peer (P2P) transactions, the buyer is personally responsible for deducting 1% TDS under Section 194S from the consideration paid, depositing it with the government, and filing the required compliance forms. This is a frequently overlooked obligation that carries significant penalties.

Our TDS on crypto P2P service covers the complete compliance cycle — from identifying which transactions trigger TDS, through challan deposit, Form 26QE or Form 26Q filing, and issuing TDS certificates. This connects with our crypto consulting, crypto tax filing, and ITR filing services.

Our TDS on Crypto P2P Transactions Services

P2P TDS Obligation Assessment

Reviewing P2P crypto transaction records to identify which transactions require TDS deduction under Section 194S — based on transaction value, counterparty type, and applicable thresholds.

TDS Computation

Computing the exact TDS amount — 1% of the consideration paid in each P2P transaction — and the applicable threshold to determine whether TDS is required.

Challan Deposit (Form 26QC / 26QE)

Depositing the TDS amount with the government using the correct challan — Form 26QE for individuals/HUFs below the audit threshold for P2P crypto TDS, or Form 26Q for audit-category deductors.

Form 26QE Filing

Filing Form 26QE — the TDS statement for Section 194S P2P transactions by non-audit individuals and HUFs — within 30 days of the end of the quarter in which TDS was deducted.

TDS Certificate (Form 16E)

Generating and issuing Form 16E — the TDS certificate for Section 194S P2P transactions — to the seller, enabling them to claim the TDS credit in their own ITR.

TDS Default Resolution

Advising on and resolving TDS defaults — late deduction interest, late deposit interest, and late filing fees — for P2P crypto transactions where compliance was not completed on time.

Key Facts

P2P crypto buyers must deduct 1% TDS under Section 194S from the amount paid to the seller
TDS threshold: ₹50,000 per financial year per seller (₹10,000 for individuals/HUFs below tax audit threshold)
For non-audit individuals and HUFs: Form 26QE is the applicable TDS statement for P2P crypto
Form 26QE must be filed within 30 days from the end of the quarter in which TDS was deducted
Late TDS deposit attracts interest at 1.5% per month from the date of deduction to the date of deposit
Late filing of Form 26QE attracts a fee of ₹200 per day under Section 234E
If TDS is not deducted, the buyer is treated as assessee-in-default — liable for TDS demand plus interest plus penalty

Frequently Asked Questions

Who is responsible for deducting TDS on a P2P crypto transaction?

In a P2P transaction, the buyer (the person paying consideration for the VDA) is responsible for deducting 1% TDS under Section 194S before making payment to the seller. Unlike exchange-based transactions where the platform deducts TDS automatically, P2P buyers must self-comply — deducting TDS from the consideration, depositing it using Form 26QE challan, and filing the TDS statement within the prescribed timeline.

What is Form 26QE and who must file it?

Form 26QE is a combined TDS challan-cum-statement for Section 194S TDS deducted by individuals and HUFs who are not required to have their accounts audited under Section 44AB. It combines the challan deposit and TDS return into a single form. It must be filed within 30 days from the end of the quarter in which TDS was deducted. For audit-category deductors, TDS on crypto P2P is reported in the regular Form 26Q quarterly TDS return.

What if the P2P crypto consideration is partly in crypto (crypto-to-crypto swap)?

Where consideration is paid in cryptocurrency rather than cash — a crypto-to-crypto swap — the buyer still has a Section 194S TDS obligation. However, since there is no cash to deduct from, the buyer must ensure TDS is deposited from their own funds and Form 26QE is filed. The TDS is computed on the FMV of the VDA being transferred at the time of the transaction. This is one of the most complex scenarios in crypto TDS compliance.

What is the penalty for not deducting TDS on P2P crypto?

Failure to deduct TDS makes the buyer an assessee-in-default under Section 201(1) — liable for: (a) the TDS amount itself; (b) interest under Section 201(1A) at 1.5% per month from the date TDS was deductible to the date of actual deposit; (c) penalty under Section 271C equal to the TDS amount; and (d) potential prosecution under Section 276B for wilful default. The seller's ITR cannot claim the TDS credit — leading to double-taxation risk.

Does TDS under Section 194S apply to foreign exchange P2P transactions?

Yes, if the buyer is a resident Indian. Section 194S applies to any transfer of VDA — the nationality of the seller does not exempt the Indian buyer from TDS obligations. Where the seller is a non-resident, Section 195 may also apply in addition to Section 194S. Indian residents buying crypto from foreign sellers via P2P must deduct and deposit TDS and file the applicable forms — non-compliance carries the same penalties as domestic P2P transactions.

P2P Crypto TDS — Deducted, Deposited, Filed Correctly

Section 194S compliance for peer-to-peer crypto buyers — Form 26QE, challan deposit, and TDS certificates.