22 June 2024
We have recently started operating a marketplace and would like to seek clarification on the tax implications based on the following scenarios:
Case Scenario 1:
In our marketplace model, we receive payments from international clients, and services are provided by Indian developers. We charge a flat 13% commission and a 5% payment gateway fee (Actual as per Paypal).
Please consider the following example:
Client Payment: 1000 USD (converted to INR, Rs. 82,550) Service provided by: Indian developer Platform Fee: 13% of Rs. 82,550 = Rs. 10,731.50 Payment Gateway Fee: 5% of Rs. 82,550 = Rs. 4,127.50 (GST included by the payment gateway provider for their service) The payment breakup to the developer is as follows:
Client Payment Total: Rs. 82,550 Platform Fee: Rs. 10,731.50 + 18% GST (Rs. 1931.67) = Rs. 12663.17 Payment Gateway Fee: Rs. 4,127.50 Amount payable to the developer: Rs. 82,550 - Rs. 12663.17 - Rs. 4,127.50 = Rs. 65,759.33 Additionally, we need to deduct 1% TDS from the final amount payable to the developer:
TDS: 1% of Rs. 65,759.33 = Rs. 657.59 Net Amount payable to the developer after TDS: Rs. 65759.33 - Rs. 657.59 = Rs. 65101.74
Case Scenario 2: For payments received in INR from domestic clients, the breakup will be as following. If the developer or service provider is under the GST slab, GST needs to be added or adjusted to the client payment, needs to be mentioned on the client invoice.
Client Payment: Rs. 50,000 Service provided by: Indian developer Platform Fee: 13% of Rs. 50,000 = Rs. 6,500 Payment Gateway Fee: 5% of Rs. 50,000 = Rs. 2,500 (GST included by the payment gateway provider for their service) The payment breakup to the developer is as follows:
Client Payment Total: Rs. 50,000 Platform Fee: Rs. 6,500 + 18% GST (Rs. 1,170) = Rs. 7,670 Payment Gateway Fee: Rs. 2,500 Amount payable to the developer: Rs. 50,000 - Rs. 7,670 - Rs. 2,500 = Rs. 39,830 Additionally, we need to deduct 1% TDS from the final amount payable to the developer:
TDS: 1% of Rs. 39830 = Rs. 398.3 Net Amount payable to the developer after TDS: Rs. 39,830 - Rs. 398.3 = Rs. 39,431.7
FIRC/FIRA Considerations: In both scenarios mentioned above, we encounter issues with FIRC (Foreign Inward Remittance Certificate). Payment gateways or banks will not issue FIRC/FIRA in the name of the service provider; they will only issue it in our name. This means the service providers cannot claim the export of service, even if the invoice is generated in their name and in international currency.
Case Scenario 3:
Consider a different approach where all charges are borne by the client.
Client makes a deal of 1000 USD with the service provider. We take a 13% commission and a payment gateway fee from the client's payment and bill them for it. The remaining amount, after conversion, is deposited to the service provider (after deducting 1% TDS). This approach ensures it is classified as an export of service, and GST is zero as we are charging the client (if international), not the service provider. FIRC in our name will still be acceptable since we will be doing the export of service.
To summarize:
Client Payment: 1000 USD (converted to INR) Commission: 13% charged to the client Payment Gateway Fee: Charged to the client Amount Payable to Developer: (Converted Amount - 13% Commission - Payment Gateway Fee) - 1% TDS
We seek your clarification on the GST, TDS, and billing structure for these scenarios.
Queries: 1. Can I do case scenario 3 for my international clients. 2. Case scenarios 3 will be deemed as Export of service for our marketplace? 3. We have to register for GST even if threshold is below 20lacs, Correct? 4. 1% TDS is deducted on all payments we remit to our service providers irrespective of threshold amount, Correct? 5. We will have to raise 2 invoices, correct me if wrong: a) One invoice service provider to client (display breakup of GST if service provider is registered for GST) b) Second invoice on the commission we charge (either client or service provider) c) Invoice numbering will be different for every transaction? Cause one transaction will have two invoice generated. 6. Paypal or payment gateway charges: How do we bill this? We have no extras in this scenario. But payment gateway guys will only bill us, not service provider. 7. FIRC/FIRA is given on our company name, so in GST we can follow case scenario 3 & will it be deemed export of service?
What is the best approach for us?
Your guidance on how to best structure these transactions for compliance would be greatly appreciated.
CAclubindia
