Tds on paypal commission
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
18 August 2013
There is private Ltd. company providing IT Services outside India. Fee for these export services is received through an agent PAYPAL. PAYPAL makes the net payment to client after deducting his own commission. For example, if USD200 are received by PAYPAL, then PAYPAL actually remits only USD190 (after deducting 5% commission)into client's account.
My question is that whether the Client is liable to deduct TDS on this commission. If yes, what would be the operating model for these transaction.
My question is that whether the Client is liable to deduct TDS on this commission. If yes, what would be the operating model for these transaction.
18 August 2013
There can be two views of this
1) It is deemed export of services and no TDS is to be deducted on 190
2) The second view is this that since the final payment is made by the indian company based in India it is a payment against contract in India and in this case yes TDS is deductible.
1) It is deemed export of services and no TDS is to be deducted on 190
2) The second view is this that since the final payment is made by the indian company based in India it is a payment against contract in India and in this case yes TDS is deductible.
Querist : Anonymous
Querist :
Anonymous
(Querist)
24 August 2013
Thanks for reply. However, I am still not very sure about the answer. Can you please elaborate & suggest the preferable option.
27 July 2025
Great question! Let’s break it down clearly:
---
### Scenario Recap:
* Your company provides IT services to a foreign client.
* The payment is received via **PayPal**, which deducts its commission (say 5%) before transferring the net amount to your account.
* The question is: **Does your company need to deduct TDS on the commission PayPal charges?**
---
### Key points to consider:
1. **Who pays PayPal’s commission?**
PayPal’s commission is deducted *before* you receive money. So effectively, PayPal is providing a service to you (facilitating payment collection) and charging a commission.
2. **Is PayPal an Indian entity or foreign?**
If PayPal India is deducting commission and charging you in India, this is a payment for services rendered in India.
3. **Nature of PayPal’s commission:**
The commission is a **payment for services**, i.e., payment for facilitation/payment gateway services.
4. **Is TDS applicable on PayPal commission?**
* If PayPal is **a resident Indian entity** (e.g., PayPal India Pvt Ltd), then TDS is deductible under **Section 194J (fees for professional or technical services)** at 10%.
* If PayPal is a **foreign entity**, TDS applicability depends on whether the services are considered rendered in India, and applicable DTAA provisions.
5. **Does your company need to deduct TDS on PayPal’s commission?**
* **Yes, if PayPal is an Indian resident entity providing services in India.**
* Your company is paying PayPal commission, so it is liable to deduct TDS under Section 194J before remitting commission.
6. **Regarding your export services income:**
* The **gross revenue (before PayPal commission)** is your income for export services.
* Your export services receipts are not subject to TDS (since payment is from abroad and is export of service).
* Your company’s obligation is only to deduct TDS when it pays commission to PayPal India for the payment services.
---
### Practical operating model:
| Step | Action |
| -------------------------- | ------------------------------------------------------------------------------------------------- |
| 1. Service rendered abroad | Your company provides IT services abroad. Export income is earned. |
| 2. Payment collection | PayPal collects gross amount from foreign client and deducts its commission. |
| 3. Commission payment | Your company pays commission to PayPal India (for payment facilitation). |
| 4. TDS deduction | Your company deducts TDS @10% u/s 194J on PayPal commission payment and deposits with government. |
| 5. Reporting | TDS deducted is reported in TDS returns. |
---
### Summary:
* **TDS is NOT deducted on the export service income you receive via PayPal.**
* **TDS IS deducted on the commission you pay to PayPal India as service fees, under section 194J.**
---
If PayPal is foreign and commission is deducted abroad, your company typically is not liable for TDS on that commission.
---
**Do you know if PayPal is charging commission via their Indian branch/entity or foreign branch?** That will clarify the exact TDS liability. Would you like me to help with that?
---
### Scenario Recap:
* Your company provides IT services to a foreign client.
* The payment is received via **PayPal**, which deducts its commission (say 5%) before transferring the net amount to your account.
* The question is: **Does your company need to deduct TDS on the commission PayPal charges?**
---
### Key points to consider:
1. **Who pays PayPal’s commission?**
PayPal’s commission is deducted *before* you receive money. So effectively, PayPal is providing a service to you (facilitating payment collection) and charging a commission.
2. **Is PayPal an Indian entity or foreign?**
If PayPal India is deducting commission and charging you in India, this is a payment for services rendered in India.
3. **Nature of PayPal’s commission:**
The commission is a **payment for services**, i.e., payment for facilitation/payment gateway services.
4. **Is TDS applicable on PayPal commission?**
* If PayPal is **a resident Indian entity** (e.g., PayPal India Pvt Ltd), then TDS is deductible under **Section 194J (fees for professional or technical services)** at 10%.
* If PayPal is a **foreign entity**, TDS applicability depends on whether the services are considered rendered in India, and applicable DTAA provisions.
5. **Does your company need to deduct TDS on PayPal’s commission?**
* **Yes, if PayPal is an Indian resident entity providing services in India.**
* Your company is paying PayPal commission, so it is liable to deduct TDS under Section 194J before remitting commission.
6. **Regarding your export services income:**
* The **gross revenue (before PayPal commission)** is your income for export services.
* Your export services receipts are not subject to TDS (since payment is from abroad and is export of service).
* Your company’s obligation is only to deduct TDS when it pays commission to PayPal India for the payment services.
---
### Practical operating model:
| Step | Action |
| -------------------------- | ------------------------------------------------------------------------------------------------- |
| 1. Service rendered abroad | Your company provides IT services abroad. Export income is earned. |
| 2. Payment collection | PayPal collects gross amount from foreign client and deducts its commission. |
| 3. Commission payment | Your company pays commission to PayPal India (for payment facilitation). |
| 4. TDS deduction | Your company deducts TDS @10% u/s 194J on PayPal commission payment and deposits with government. |
| 5. Reporting | TDS deducted is reported in TDS returns. |
---
### Summary:
* **TDS is NOT deducted on the export service income you receive via PayPal.**
* **TDS IS deducted on the commission you pay to PayPal India as service fees, under section 194J.**
---
If PayPal is foreign and commission is deducted abroad, your company typically is not liable for TDS on that commission.
---
**Do you know if PayPal is charging commission via their Indian branch/entity or foreign branch?** That will clarify the exact TDS liability. Would you like me to help with that?
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