Digital payments for ads or software? Here's where TDS may surprise you

Business Standard

4 hours ago

Freelancers, small business owners, and e-commerce sellers are increasingly relying on digital platforms for advertising, software, and sales. But these payments often come with tax obligations that many overlook, especially under India's Tax Deducted at Source (TDS) rules.
Experts say a good starting point is identifying whether the payment is made to an Indian or foreign company.
'This is crucial, as domestic payments are governed by Sections 194C and 194J, while international ones fall under Section 195,' says Ankit Jain, partner at a chartered accountancy firm, Ved Jain and Associates.
Domestic versus foreign payments: Know your provider
For payments to Indian providers, such as digital ad agencies or cloud service resellers:
Section 194C applies to ad contracts; TDS at 2 per cent if the annual payment exceeds Rs 30,000.
Section 194J applies to professional or technical services like AWS or Zoom; TDS at 10 per cent.
Exemption: 'TDS isn't required if you aren't under tax audit or are a non-corporate entity,' notes Jain.
For foreign providers, such as Google, Meta, or SaaS platforms:
TDS under Section 195 applies, but rates vary depending on the Double Taxation Avoidance Agreement (DTAA).
You must also file Form 15CA/CB, even if TDS isn't deducted; failure attracts a penalty of Rs 1 lakh.
Common mistakes to avoid
According to Ritika Nayyar, partner at a law firm, Singhania & Co., many taxpayers:
Wrongly assume no TDS is needed if the provider is foreign.
Skip filing Form 15CA/CB if no TDS is deducted.
Misapply DTAA benefits without obtaining a Tax Residency Certificate.
Ignore changes in TDS law or documentation requirements.
Selling online? Know your 1 per cent TDS rule
Platforms like Amazon, Flipkart, and Zomato deduct 1 per cent TDS on seller earnings under Section 194-O.
'This amount reflects in your Form 26AS and can be claimed as a credit while filing returns,' says Nayyar, adding that, 'Maintaining accurate sales and TDS records is key.'
Can small users avoid TDS?
Yes, in many cases. If your turnover is below Rs 1 crore (business) or Rs 50 lakh (profession), you're generally not liable to deduct TDS.
Also, individuals or HUFs paying for personal use are exempt from TDS obligations.
But for international payments, no basic exemption exists, warns Jain. 'All such cases must be evaluated carefully, especially when claiming DTAA benefits.'