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Online Services is commerce transacted electronically. Communication messages are transmitted through electronic medium. The system is run by software. All software are nothing but electrons stored or arranged in specific manners. This article is basically based on the topic is tax to deducted on payment made for online services. For the purposes of this cahier, Electronic – Commerce or E-Commerce has been defined to cover – “commercial transactions in which the order is placed electronically and the goods or services are delivered in tangible or electronic formâ€. 
Payment made for online advertisement is not taxable The taxpayer made payments to Google Ireland and Yahoo USA for online advertisement services. The payment were made without withholding tax at source on the basis that the same is not taxable in india. The Tribunal held that in order to attract taxability in India, the income must relate to the business carried out in India through physical presence in India. A search engine, which has presence only through its websites, cannot constitute physical presence in India and hence payment to Google Ireland and Yahoo USA is not taxable in Indi. Further, the payment cannot be taxable as royalty as the taxpayer had no right to access the portal. The Tribunal held that providing sponsored search result, as also placing a banner advertisement on another person’s website, is clearly a service rendered to the advertiser. However since there is no human involvement in the whole process on the search engine, the services provided by Google Ireland and Yahoo USA is not covered within the scope of definition of technical services and hence not taxable as technical services. What is the procedure to account for TDS on Facebook advertisement in India? If I pay for facebook advertisement through my company credit card, how do i account for Tax Deduction at Source? The billing for facebook is done from Ireland. But how do I deal with depositing the TDS deduction in India? Do Indian companies normally pay an extra 20% on their ads expenditure and bear the TDS liability on themselves? How is this different from Google Advertisement? To explain my opinion on this matter, we shall first try to understand section 195(the charging section for payments to non residents) which states “…any person responsible for paying to a non resident, not being a company, or to a foreign company any interest or any other sum chargeable under the provisions of this act shall at the time of such credit of such income to the account to the payee or at the time of the payment thereof in cash or deduction income tax thereon at the rates in force†The keyword here is “Sum chargeable under the provisions of this act†or income, as defined in the act. Now income deemed to accrue or arise in India is defined by section 9 of the act. Now the explanation to section 9(1) states “For the purposes of this clause – (a) In the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India†Now let us go back to our case where we are making payments online, to “facebook Ireland†for “facebook advertisementâ€, which may be seen not just in India but anywhere in the world In the instant case, no element of the performance of the requested service (advertising) is executed in India, the said income cannot be attributed to the operations of facebook in India and hence no tax is applicable on the said income in India. This would directly imply that no TDS is to be deducted on such payments. New Issues Recently we were reading articles on websites giving a platform to the experts to provide services to the clients through video conferencing and charging for the same. The platform giving website will take some percentage of the fees received from the customer. So the query arises whether the online platform should deduct TDS on the fees which has been directly given to the expert. This is a query which needs to be resolved. Conclusion It is still a very interesting topic to talk on whether TDS provisions would be applicable on Online service transaction. Different people have different opinion about the same. The matter is a little ambiguous and not fully clear. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests? at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.
Is Tax to deducted on payment made for online services
Direct Taxes (including International Taxation) | By ALOK PATNIA | Last updated on Oct 5, 2017
Online Services is commerce transacted electronically. Communication messages are transmitted through electronic medium. The system is run by software. All software are nothing but electrons stored or arranged in specific manners. This article is basically based on the topic is tax to deducted on payment made for online services. For the purposes of this cahier, Electronic – Commerce or E-Commerce has been defined to cover – “commercial transactions in which the order is placed electronically and the goods or services are delivered in tangible or electronic formâ€. Payment made for online advertisement is not taxable The taxpayer made payments to Google Ireland and Yahoo USA for online advertisement services. The payment were made without withholding tax at source on the basis that the same is not taxable in india. The Tribunal held that in order to attract taxability in India, the income must relate to the business carried out in India through physical presence in India. A search engine, which has presence only through its websites, cannot constitute physical presence in India and hence payment to Google Ireland and Yahoo USA is not taxable in Indi. Further, the payment cannot be taxable as royalty as the taxpayer had no right to access the portal. The Tribunal held that providing sponsored search result, as also placing a banner advertisement on another person’s website, is clearly a service rendered to the advertiser. However since there is no human involvement in the whole process on the search engine, the services provided by Google Ireland and Yahoo USA is not covered within the scope of definition of technical services and hence not taxable as technical services. What is the procedure to account for TDS on Facebook advertisement in India? If I pay for facebook advertisement through my company credit card, how do i account for Tax Deduction at Source? The billing for facebook is done from Ireland. But how do I deal with depositing the TDS deduction in India? Do Indian companies normally pay an extra 20% on their ads expenditure and bear the TDS liability on themselves? How is this different from Google Advertisement? To explain my opinion on this matter, we shall first try to understand section 195(the charging section for payments to non residents) which states “…any person responsible for paying to a non resident, not being a company, or to a foreign company any interest or any other sum chargeable under the provisions of this act shall at the time of such credit of such income to the account to the payee or at the time of the payment thereof in cash or deduction income tax thereon at the rates in force†The keyword here is “Sum chargeable under the provisions of this act†or income, as defined in the act. Now income deemed to accrue or arise in India is defined by section 9 of the act. Now the explanation to section 9(1) states “For the purposes of this clause – (a) In the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India†Now let us go back to our case where we are making payments online, to “facebook Ireland†for “facebook advertisementâ€, which may be seen not just in India but anywhere in the world In the instant case, no element of the performance of the requested service (advertising) is executed in India, the said income cannot be attributed to the operations of facebook in India and hence no tax is applicable on the said income in India. This would directly imply that no TDS is to be deducted on such payments. New Issues Recently we were reading articles on websites giving a platform to the experts to provide services to the clients through video conferencing and charging for the same. The platform giving website will take some percentage of the fees received from the customer. So the query arises whether the online platform should deduct TDS on the fees which has been directly given to the expert. This is a query which needs to be resolved. Conclusion It is still a very interesting topic to talk on whether TDS provisions would be applicable on Online service transaction. Different people have different opinion about the same. The matter is a little ambiguous and not fully clear. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests? at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.