Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
A merchant's payment gateway nets its fees from settlements and the finance team does not know whether TDS applies or who should deduct it.
Read each fee line on the gateway's monthly tax invoice, classify it with the CA (commission, technical service or other), and deduct on the pre-GST fee where TDS applies.
Vendor master record for the gateway with PAN, agreed section, contract clause and the monthly invoice as the source document.
A consistent monthly TDS entry on gateway fees, deposited by the due date and reported in the quarterly return.
It depends on what each fee really is. A payment gateway (Razorpay, PayU, Cashfree and others) usually bills a fee for processing your customer payments and takes it out of your settlement. Whether you must deduct TDS (tax deducted at source) on that fee depends on how it is described and billed: as commission, as a technical service, or otherwise. Views on this differ, so classify each fee line on the gateway’s invoice and confirm the position with your CA.
Which fee lines appear on a gateway invoice?
Most gateways send a monthly tax invoice listing their fees and GST. Here are the common lines and the questions that decide TDS.
| Fee line | Who raises the invoice | Questions that decide TDS |
|---|---|---|
| Gateway or transaction fee (MDR) | The gateway | Does the contract call it commission for collecting on your behalf, or a fee for a technical service? |
| Platform or set-up fee | The gateway | Is it for software access or for a service? |
| Refund processing fee | The gateway | Same as the main fee; usually follows its treatment |
| International or currency fee | The gateway | Is part of it passed through to card networks? |
| GST on fees, 18% | The gateway | Shown separately? Then TDS is on the fee excluding GST |
The two readings people see most often are commission (Section 194H of the 1961 Act, 2% from 1 October 2024) and fees for technical services (Section 194J, 2%). From 1 April 2026 both sit in Section 393 of the Income-tax Act 2025. Some gateways state in their terms which they consider applies. Do not pick a section only from a blog post. Read the contract, and ask your CA.
Who deducts when the gateway nets its fee from your settlement?
You do, if TDS applies, because you are the one paying the fee. The tricky part is that you never hand over cash. The gateway has already kept the fee. So you:
- Book the fee as an expense when the monthly invoice arrives.
- Work out TDS on the fee excluding GST.
- Deposit that TDS from your own bank account by the 7th of the next month.
- Recover the same amount from the gateway, either as a refund or an adjustment, as your agreement allows.
- Report it in your quarterly return so it appears in the gateway’s Form 26AS (or Form 168 from tax year 2026-27).
Worked example: ₹10,00,000 of monthly settlements
An online tutoring company collected ₹10,00,000 through its gateway in July 2026. The gateway invoice showed:
| Line | Amount |
|---|---|
| Transaction fees | ₹20,000 |
| GST on fees at 18% | ₹3,600 |
| Total fees | ₹23,600 |
The bank received ₹10,00,000 − ₹23,600 = ₹9,76,400.
On a commission reading at an assumed 2%, TDS is ₹20,000 × 2% = ₹400. The GST of ₹3,600 is left out of the TDS base. The company deposits ₹400 by 7 August 2026 and asks the gateway to refund or adjust it. If the CA concluded no TDS applied, the company would keep a written note of the reasoning instead.
What should be recorded in the books and vendor master?
In the books, record the gross fee of ₹20,000 as an expense, GST of ₹3,600 as input tax credit if eligible, ₹400 as TDS payable, and ₹400 as receivable from the gateway until it is adjusted. In the vendor master, keep the gateway’s PAN, the chosen section, the contract clause and the monthly invoice. If TDS is required and not deducted, Section 40(a)(ia) of the 1961 Act can disallow 30% of the expense.
What to read next
- The commission rules are in TDS on commission and brokerage under Section 194H.
- For marketplace payouts, read e-commerce operator vs participant under Section 194O.
- To understand the settlement gap itself, see why your gateway payout is less than your sales.
TransactIG reconciles your TDS payable and deposits against your books. Gateway settlement reconciliation is on the roadmap.