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Business Standard
9 hours ago
- Business
- Business Standard
Digital payments for ads or software? Here's where TDS may surprise you
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.'
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Business Standard
12-05-2025
- Business
- Business Standard
Got a tax notice for a sudden income spike? What it means what you must do
If you receive a notice from the Income Tax Department under Section 133(6) of the Income-tax Act, 1961, don't jump to conclusions. This provision allows tax officers to seek specific financial information or documents from any person, regardless of whether a formal assessment or investigation is ongoing. According to Kunal Savani, partner at Cyril Amarchand Mangaldas, 'Section 133(6) empowers tax authorities to call for information not only during ongoing assessment but even when no proceedings are pending.' He added that such notices are commonly sent when there are high-value transactions, sudden income spikes, or large deductions that appear inconsistent with the income reported by the taxpayer. What kind of documents are usually sought? Ankit Jain, partner at Ved Jain and Associates, says that the notice may ask for documents such as: Bank statements Purchase or sale agreements GST returns Invoices Loan documents Agreements with customers or vendors He explained that even third parties, like banks or vendors, can receive such notices if they are linked to a taxpayer under scrutiny. Steps to follow after receiving the notice According to Jain, the taxpayer should follow a structured response: Verify the notice: Ensure it has been issued by a valid income tax officer and carries a DIN (Document Identification Number). Compile documents: Gather all relevant data and check it for accuracy. Submit the response: The information should ideally be furnished via the Income Tax e-filing portal, Jain said. 'For hard copy submissions, get an acknowledged copy,' he added. Seek more time if needed: If documents can't be provided within the deadline, Jain advised sending a formal request for extension. Is it a sign of trouble? Both experts clarified that a notice under this section does not imply wrongdoing. 'It's a routine tool for verification. No proceedings can be initiated solely on the basis of this notice,' said Jain. How to avoid receiving one in the first place To steer clear of such notices, Naveen Wadhwa, Vice President at Taxmann, recommended maintaining financial transparency. He advised avoiding large cash transactions, especially for property or jewellery, and ensuring accurate income reporting throughout the year. 'These notices are often triggered by mismatches or anomalies. If your disclosures are consistent with your financial activities, there's little reason to worry,' Wadhwa said
