TDS Defaults on Ads, Influencer Barter and Foreign Software

In short

Three kinds of payment cause most of the TDS trouble ecommerce brands run into:

• Products given to creators. These are products given to influencers and creators in return for content.
• Advertising. This covers ads bought from platforms and agencies.
• Foreign software. These are subscriptions to software and services from overseas providers.

Each has its own TDS rule. When tax is not deducted, or is deducted at the wrong rate, the brand can be treated as an "assessee in default". It then pays the tax with interest, and part or all of the expense can be disallowed. Check every recurring vendor once, then apply the result every month.

1. Products and benefits given to creators

The rule. A business that gives a benefit or perquisite to a resident, arising from that person's business or profession, must deduct tax before giving it. This applies once the value crosses the yearly threshold for that person.

• The law: section 194R of the 1961 Act, for FY 2025-26 and earlier. From tax year 2026-27 it is section 393(1) of the 2025 Act.
• The figures: the threshold and rate this site uses are in the box below.

Benefits given in kind. When the benefit is a product and not cash, the law requires the giver to ensure the tax has been paid before releasing it. CBDT guidance under section 194R (Circulars 12/2022 and 18/2022) describes ways to do this, including:

• deducting the tax from a cash payment to the same person;
• the recipient paying the tax as advance tax and giving proof.

Products returned after use. The same guidance treats a product that the creator returns after making the content as not a benefit. A product they keep is a benefit.

The GST side. Input tax credit is blocked on goods given away as gifts or free samples, under section 17(5)(h) of the CGST Act; see the box below. Goods given as payment for a creator's promotional services are a different case, a barter. Their GST treatment needs examining before you settle on one.

Where defaults come from:

• no record of products sent to creators;
• no running total of value for each creator across the year;
• products released before the tax is ensured;
• creators who also receive a cash fee that already had TDS deducted under another provision, with the product value left out.

2. Advertising

• Who bills you. Look at who issues your advertising invoices. Many large platforms bill Indian advertisers through an Indian company. Others bill from abroad.
• Indian company. The payment falls under the domestic TDS provisions that apply to the nature of the contract. The map of 1961 Act sections to 2025 Act sections this site uses is in the box below.
• From abroad. The rules for payments to non-residents apply, as in part 3 below.
• Equalisation levy. The levy on online advertising services bought from non-residents stopped applying from 1 April 2025. Advertising after that date carries no equalisation levy. Earlier years may still be checked for it.

3. Foreign software and services

The question to answer. For a payment to a non-resident, the payer must decide whether the receipt is taxable in India. If it is, tax is deducted before payment.

• The law: section 195 of the 1961 Act, for FY 2025-26 and earlier. From tax year 2026-27, the corresponding provisions of the 2025 Act apply.
• How to decide: read the Income-tax Act together with the tax treaty (DTAA) between India and the supplier's country.

Software licences. In Engineering Analysis Centre of Excellence (2021), the Supreme Court held that payments for software licences that do not transfer copyright are not royalty under the tax treaties examined. Those payments are taxable only as business income, and only if the supplier has a permanent establishment in India. Many SaaS subscriptions are covered by that reasoning. Apply it to each contract rather than assuming it.

Documents to keep for a treaty position:

• the supplier's tax residency certificate;
• Form 10F;
• a declaration that the supplier has no permanent establishment in India.

Reporting the remittance. The remittance itself must be reported online before payment.

• The forms: Forms 15CA and 15CB up to 31 March 2026. From 1 April 2026, Forms 145 and 146 under the Income-tax Rules, 2026.
• The accountant's certificate (15CB, now 146) is needed above the threshold shown in the box below.

The GST side. A registered business that buys services from abroad pays GST on them under reverse charge. It can usually claim that GST back as input tax credit.

What a TDS notice looks like

• A demand from TRACES (the TDS portal). It is raised when a TDS statement is processed and covers short deduction, late deduction or payment, late filing fees, or a PAN mismatch.
• A query during assessment. The officer asks why tax was not deducted on certain payments, usually found from your ledger or from the payee's tax filings.
• An order treating you as an assessee in default for tax not deducted. Interest and penalty follow.

Step-by-step: how to respond

1. Identify the payments and the years. Check whether the 1961 Act or the 2025 Act applies to each payment. The date the payment was credited or made decides it.
2. Check whether the payee has already paid the tax. If they have, and they file a certificate from an accountant confirming it, you can avoid paying the tax again. Interest for the delay still applies.
3. For non-residents, prepare the treaty position. Gather the residency certificate, Form 10F, the no-permanent-establishment declaration and the contract. Explain why the payment is not taxable in India, or is taxable at the treaty rate.
4. Pay what is due. Pay through the right challan and file or correct the TDS statement, so the credit reaches the payee and the TRACES demand clears.
5. Reply with a schedule. For each payment give the payee, the PAN or country, the amount, the provision applied, the tax deducted or the reason none was due, and the evidence.

Documents to gather

• The ledger of creator collaborations: products sent, their value, the dates, whether they were returned, and any cash fee paid.
• Advertising invoices, showing who billed them and from where.
• Foreign supplier contracts and invoices, plus residency certificates, Form 10F and no-permanent-establishment declarations.
• TDS statements and challans, and the TRACES justification report for any demand.
• The remittance forms (15CA/15CB, or 145/146) filed for each foreign payment.

Common mistakes

• Assuming no cash means no TDS. A product given to a creator is a benefit when it crosses the threshold.
• Using the wrong year's provisions. Quote the 1961 Act for FY 2025-26 and earlier, and the 2025 Act after that.
• Paying foreign suppliers by card without checking TDS. Card payments still need the TDS and reporting check.
• Treating the equalisation levy as still applying to ads, or forgetting it for years before it ended.
• Keeping no evidence for a treaty claim. Without the residency certificate and Form 10F, the treaty benefit is hard to defend.

Preventing it next time

• Map each recurring vendor once. Record whether the vendor is Indian or foreign, the TDS provision or treaty position, and the GST treatment. Review the map each year.
• Keep a running tally for each creator. Track the value of products and benefits per creator across the tax year, and check it before each dispatch. The influencer barter calculator below helps.
• Run the foreign-payment check before each first payment to a new overseas supplier. The foreign remittance calculator below helps.

When to take professional help

Take help when:

• a demand covers several years;
• an officer disputes a treaty position;
• creators' benefits have built up without any record.

Treaty positions and in-kind benefits depend heavily on the facts. A careful written position with evidence matters more than the amount involved.