RBI’s Auto Debit Rule Could Cause Tax Woes for Fintech Cos

Mumbai: The Reserve Bank of India’s (RBI) auto debit rule could bring tax complications for fintech companies that have set up platforms for banks to integrate with a common e-mandate platform to ensure compliance.

Fintech companies run the risk of attracting a 2% equalization levy as well as additional goods and services tax (GST) at 18% on part of the money they make through such an arrangement, especially in transactions where an Indian citizen has subscribed services of a foreign OTT player or he/she buys goods and services form a company not based in India.

Payment aggregators Razor pay, Bill Desk and PayU have set up platforms – Mandate HQ, Shub and Zion, respectively – that will provide a “bridge” for banks to complete the transactions.

With the introduction of a new intermediary – apart from bank – between the customer and the overseas merchant establishment (Netflix, Apple store etc.), tax implications have cropped up.

The fintech platform provides additional factor authentication, notifications to customers and dash board for subscription management to banks for a fee.

How equalization levy – 2% charge on any transaction involving a foreign company over internet – and GST will be charged will depend on the structure of fintech player’s entities and how the transaction is routed, say tax experts.

They say there could be a number of ways where the government’s new equalization levy could come into play.

“The risk of the platforms attracting a 2% equalization levy on the fee that platforms will charge to merchants exists,” said Girish Vanvari, founder, tax advisory firm Transaction Square. “The 2% equalization levy, as the definition suggests, is applicable on any overseas transaction and it could be levied even where the merchant or the companies that are charged are not based in India.”

First, if the bank from which the money is being deducted is not based in India or doesn’t have a tax presence in India – the fee or any money charged by the fintech platform will face 2% tax.

The second probability will depend on how the transaction is structured. If the fee received even from an Indian bank doesn’t directly come to an Indian entity – this too could attract a 2% tax.

If the money goes through a subsidiary of the fintech company, say established in Singapore or the UAE before it makes it to the foreign merchant, even these could attract the levy. And there is a GST implication too, say tax experts. If the money deducted from an Indian’s debit or credit card goes via the fintech’s books before it’s remitted in the foreign merchants’ account, GST can come into play, say tax experts. S-ET

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *