Now Pay Service Tax on Websites and Servers Hosted Abroad

Data CentreNow Pay Service Tax on Websites and Servers hosted abroad as service tax has been levied on import of online information and database access and retrieval (OIDAR) services with effect from 01.12.2016.

Till 30th November, 2016, services received by businesses in India (Taxable Territory) from outside India (Nontaxable Territory) [cross border B2B (business to business) services] were taxable under reverse charge. This means that a business service recipient in India was required to pay service tax on Import of Services. This was in view of Place of Provision of Service Rules, 2012 rule 3, being general rule, stating that for levying service tax, the place of service receiver shall be considered as place of provision of service. In cases of imports of services into India, location of service receiver is India and hence the tax liability lied on business service receiver located in India.

B2C import of services was exempt [B2C – Service receiver being Individuals not into business and Government]

Further, with respect to online information and database access or retrieval services, the place of supply is location of service provider, in view of Place of Provision of Service Rules, 2012 rule 9(b), and thus such cross border B2B/B2C services provided by a person from outside India and received by a person in India, w.r.t., online information and database access or retrieval services were outside the levy of service tax. Hence, in cases of imports of OIDAR services, no service tax was required to be paid by Indian service recipient companies under Reverse Charge.

Indicative list of online information and database access or retrieval services includes:

  • Online advertisement – Google, Facebook adds
  • Providing cloud services, online data storage and back-up services – Amazon and other cloud based services
  • Website and webpage hosting services
  • Provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet – Downloadable links and online streaming
  • Providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network – Online data and software access and downloads
  • Online supplies of digital content (movies, television shows, music, etc.) – Including online installations and downloads
  • Digital data storage – Including email and inbox services
  • Online gaming
  • Online security and firewall services

However, from 01.12.2016, this provision has been changed completely.

Now, in all OIDAR B2B services received in India from outside India shall attract levy of service tax under reverse charge on the importer of services in India. The Indian Companies shall not get exemption on payment of service tax on import of online information and database access and retrieval services.  

And in case of B2C supply of OIDAR service from service provider outside India to an Indian non-business individual or government, the oversea entity shall have to charge Service Tax under ‘Forward Charge’. The oversea entity shall not only have to take Indian Service Tax registration, they will also have to make service tax payments and file service tax returns in time, manner and form as has been prescribed.

The rate of service tax shall be 15% (14% Service Tax plus 0.5% SBC plus 0.5% KKC)

The moves seem to bring the Foreign Service providers at par with the domestic service providers, who are otherwise required to charge and pay service tax. This move also aims to bring more uniformity for smoother GST implementation which is underway.

However, this will be a cost escalation for Individuals and added compliance for the Indian IT and ITeS industry, e-commerce and technology companies and specially start-ups. 

Author: Rahul Agarwalla

A Chartered Accountant with 9 years of experience in litigation, consultancy and compliance in Income Tax laws, Service Tax and other tax and Corporate Laws.

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