RBI’s automatic debit rules could create additional tax liability for Razorpay, BillDesk, PayU
- Payment aggregators Razorpay, BillDesk, and PayU have set up platforms – MandateHQ, SiHub, and Zion, respectively – that will provide a “gateway” for banks to complete transactions.
- A tax could be levied on a portion of the money they earn through such an arrangement, especially in transactions where an Indian citizen has subscribed to the services of a foreign entity.
- The fintech platform provides additional factor authentication, customer notifications and a dashboard for managing bank subscriptions for a fee.
New Delhi: The new direct debit rules that went into effect on October 1 could create an additional tax liability for financial technology companies like Razorpay, BillDesk and PayU, as they have put in place platforms that allow banks to s ” integrate with a common electronic mandate platform to ensure compliance.
According to a report in the Economic times, FinTech companies run the risk of attracting a 2% equalization levy as well as an additional goods and services tax (GST) of 18% on some of the money they earn from a such arrangement, especially in transactions where an Indian citizen has subscribed for services from a foreign OTT player or he / she is purchasing goods and services from a company based in India.
Payment aggregators Razorpay, BillDesk, and PayU have set up platforms – MandateHQ, SiHub, and Zion, respectively – that will provide a “gateway” for banks to complete transactions.
With the introduction of a new intermediary – outside the bank – between the customer and the foreign merchant establishment (Netflix, Apple store, etc.), the tax implications have emerged.
The fintech platform provides additional factor authentication, customer notifications and a dashboard for managing bank subscriptions for a fee.
How the equalization levy – a 2% fee on any transaction involving a foreign internet company – and GST will be charged will depend on the entity structure of the fintech players and how the transaction is routed, a mentioned the financial daily citing tax experts.
Tax experts say there could be a number of ways the government’s new equalization levy could come into play.
“There is a risk that the platforms attract a 2% equalization tax on the fees that the platforms will charge merchants,” said the publication cited by Girish Vanvari, founder of tax consultancy Transaction Square. “The 2% equalization levy, as the definition suggests, is applicable on any overseas transaction and it could be levied even when the merchant or businesses that are charged are not based in India.”
First, if the bank from which the money is deducted is not based in India or does not have a tax presence in India, the fees or any money charged by the fintech platform will be subject to a tax of 2 %.
The second probability will depend on how the transaction is structured. If the fee received even from an Indian bank does not reach an Indian entity directly, it could also result in a 2% tax, the publication mentioned.
If the money goes through a branch of the fintech company, for example established in Singapore or the United Arab Emirates before reaching the foreign merchant, even these could be subject to tax. And there is also an implication of the GST, say tax experts. If the money deducted from an Indian’s debit or credit card goes through the fintech’s books before it goes into the account of foreign traders, the GST may come into play, tax experts say.