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TDS on Payment Gateway Commission

Harish Naidu (Job) (193 Points)

25 June 2011

We have a website where users play Games online by paying money. If the player wants to load money into his account he needs to pay through Net Banking/Credit Cards, they will be redirected to CC Avenue Payment Gateway after selecting mode of payment. We will be receiving the money from CC Avenue Payment Gateway after deduction of 3% Commission as Payment Gateway Charges.

Please let me know if we need to deduct TDS on this commission charged by Payment Gateway Provider

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14 Replies

CA Rajesh Keshri (CA) (175 Points)
Replied 25 June 2011

Yes tds should apply for payment of commission u/s 194H

Aparna Raja K.C (Student) (520 Points)
Replied 25 June 2011

Originally posted by : rajesh keshri
	Yes tds should apply for payment of commission u/s 194H

Agree..

and more over no TDS is required , if amount of payment is =< 5000/- from a person

vikarn sharma (Working As Semi-CA) (25 Points)
Replied 17 November 2011

Hi Rajesh and Aparna,

but can you just let me know how do we collect the TDS amount from the Gateway agency in the following example

As Customer pays to Gateway agencies Rs.1000/-

Gateway pays to us Rs.970 after deducting his commission @ 3%.

Now how do deduct and collect TDS in this case ??

Aparna Raja K.C (Student) (520 Points)
Replied 23 November 2011

So.. the amount that you are receiveing is not commission.. right.?

it is your service charges... then TDS wont be applicable.. only ST wil be applicable.. and that too only when your gross receipt is more than 10 lakhs :)

you will have to get registered for ST no. if ur gross receipt is more than 9 lakhs:)

vikarn sharma (Working As Semi-CA) (25 Points)
Replied 23 November 2011

Hi Aparna,

You are getting me wrong.......

Please tell how the TDS will be deducted in the following situation:-

ABC Ltd is payment gateway agency which is charging commission as service charge @ 3% on every transaction which is collected from the customer of product selling company.

XYZ product Ltd. is product selling company.

when a customer buys a product online and pays through debit card or credit card it means he is making payment to gateway agency(i.e.ABC Ltd.)

then ABC ltd. get that payment credited in the account of product selling company after charging its own commission (i.e.3%) and transfer balance amount 97% of Transaction amount or receipt of payment gateway agency.

Problem:-

As Rajesh said above TDS is to be deducted in this situation and you have approved for that.

ABC Ltd transfer only 97% of receipt then how can TDS be deducted and collected on the commission amount of 3%??

Regards

Vikarn

vikarn sharma (Working As Semi-CA) (25 Points)
Replied 23 November 2011

Just think from the point of view of XYZ Product Ltd.in the above situation .......

thanks

Sunil (Trader) (2611 Points)
Replied 25 September 2012

The payment as described by you is a fee for using of gateway and not a brokerage, even if it is called commission. Commission is when there is a Principal - Agent relationship on THE SALE of the goods or services. Here, there is no commission payable on the sale of the goods. Therefore TDS is not applicable u/s 194H.

Now consider the real essence of this transaction. Merchant makes an invoice on card holder and the bank or gateway discounts and pays to the merchant. It is similar to what banks do as BILL DISCOUNTING and it is NOT a brokerage. Therefore the discounting charges is INTEREST + FEES all deducted up front before paying to the merchant.. As per definition No. 28A in section 2 of Income Tax Act 1961

"interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;].

It is clear that the merchant is borrowing money against a receivable from the card holder for which he is paying a discounting charge. Therefore the TDS if at all will be under Section 194A and not 194H. Moreover if you are paying the interest or discounting fee to a bank, then there is no applicability of TDS as per Section 194.

Navajyoti Lahan (Chartered Accountant) (54 Points)
Replied 06 September 2013

Hi everyone,

I have a different issue related to same circumstance. We provide online technical support to our clients based in US & Canada. For this we use a gateway service provider to receive payment from our clients.

The Gateway service provider charges 30% of transaction value as a fee for gateway usage, deducts this amount and rest becomes our revenue from sales.

Now, in addition to above 30%, he is again deducting 10% as TDS on the balancing amount. But neither that deduction is shown in any documents nor we have received any TDS certificate from him.

Please suggest. As the transaction amount is too high, I am bearing a heavy loss on account of this fake TDS.

shivam gupta (Student) (142 Points)
Replied 06 September 2013

Originally posted by : vikarn sharma

Hi Rajesh and Aparna,

but can you just let me know how do we collect the TDS amount from the Gateway agency in the following example

As Customer pays to Gateway agencies Rs.1000/-

Gateway pays to us Rs.970 after deducting his commission @ 3%.

Now how do deduct and collect TDS in this case ??

Dear In this Case TDS will be deducted by grossing up the amount paid as per sec 195A

Ex.

(30+x)*10%=x

3+.1x=x

3=.9x

x=3.3333 Rs.

This will become the income of the Service provider which is chargeable to Tax.

& since TDS had not been deducted so the co. which received the remaining amount shall have to pay the amount of TDS. From now on Co. should direct such service provider to pay the amount after deducting his share of TDS & remit the rest, by doing this co. would not be required to bear the TDS amount.

shivam gupta (Student) (142 Points)
Replied 06 September 2013

Originally posted by : Navajyoti Lahan
	Hi everyone, I have a different issue related to same circumstance. We provide online technical support to our clients based in US & Canada. For this we use a gateway service provider to receive payment from our clients. The Gateway service provider charges 30% of transaction value as a fee for gateway usage, deducts this amount and rest becomes our revenue from sales. Now, in addition to above 30%, he is again deducting 10% as TDS on the balancing amount. But neither that deduction is shown in any documents nor we have received any TDS certificate from him. Please suggest. As the transaction amount is too high, I am bearing a heavy loss on account of this fake TDS.

suppose he is receiving 100 Rs. the following should be done :-

100*30%= 30

Tds on 30 Rs. since he is providing service & you are technically paying him for the services so TDS should be deducted from the amount of 30 rs. i.e 10% 30Rs. =3Rs

NOw he should remit you 100 - 27 = 73 so 3Rs. would be paid by you to the Govt as TDS & Remaining 70 will be your Income.

1 Like

Navajyoti Lahan (Chartered Accountant) (54 Points)
Replied 06 September 2013

Thank you shivam,

One thing to mention here is that, even service provider is an indian co. registered in Delhi. so, i guess 195 will not be attracted. it will fall under 194H. Also please let me know, will there be any service tax implication in this? If so, which service?

Thanks in advance

1 Like

abc (.) (21 Points)
Replied 18 March 2014

TDS is not applicable. For further details please check the link:

https://www.psheth.com/no-tds-us-194h-on-credit-card-charges-paid-to-banks-mum-itat/

and

https://www.studycafe.in/2013/09/no-tds-on-sum-paid-to-banks-for.html

mukesh (Student CA IPC / IPCC) (40 Points)
Replied 14 June 2016

Hi Vikran,

In case payment gateway is recieving Rs.100 and remiting only Rs.97 to the company charging Rs.3 as its commission ,suggestion would be as follows,

Please deduct TDS on Rs.3 under 194H and deposit it with the government.After generating Form 16A and get it reimbursed form the payment gateway company.

All the process should be discussed with the payment gateway company and plan it accordingly.

Issac (Engineer) (22 Points)
Replied 03 December 2018

Can you just let me know how do we collect the TDS amount from the Gateway agency in the following example As Customer pays to Payment Gateway agencies Rs.10000/- Gateway pays to us Rs.9700 after deducting his commission @ 3%. Now how do deduct and collect TDS in this case ??