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15% tax on downloads for foreign websites


21 Jun 2013
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The next time you download music or an e-book from an overseas site, or decide to buy some storage on a cloud from an overseas service provider, beware. Beginning December 1, a service tax component of 15% will be added to your bill.

Domestic suppliers, say of films which can be downloaded by customers in India, already incur this service tax. If the supplier was overseas, the tax didn't apply if the recipient of the service was an individual, government, local body or government agency based in India. From an industry perspective, there is now a level playing field between domestic and overseas suppliers.

The tax component is the result of amendments by the Central Board of Excise and Customs in the 'Place of Provisions of Services Rules' (PPSR) for 'online information and database access or retrieval services'.

In a surprise move, the Central Board of Excise and Customs, through four notifications dated November 9, changed the definition of 'place of provision of service'.

Overseas suppliers incur the service tax only in respect of business-to-business (B2B) transactions, where the recipient was in India. Further, an exemption was available in such transactions if the supply was related to information databases (such as a subscription for international tax journals).

Until now, if service providers were outside India, the place of provision of service was also outside India and no service tax was payable on such services supplied to individuals, government and government bodies in India. From December 1, the place of provision of a service will be the location of the service recipient.

"Hence, say, all downloads in India will be subject to service tax. The amendments impact overseas companies providing various services like advertisements, web subscriptions, cloud hosting, music, e-books and gaming, to name a few. These services provided to governments and individuals were earlier not subject to service tax. They now become taxable and the overseas service provider or any intermediary or authorised representative will need to register in India and pay the service tax," says Sunil Gabhawalla, chartered accountant and indirect tax expert.

He adds, "Since the overseas service provider is likely to collect this tax from the end user who downloads these services, it would increase the cost for the consumer."

The definition of 'online information and database access or retrieval services' has also been changed. It now means services whose "delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology".

The notification adds that this includes services such as internet advertising, providing cloud services, e-books, movies, music, software and other intangibles via telecommunication networks or internet; providing data or information in electronic format via a computer network; online supply of digital content; digital data storage and online gaming. "The definition is very extensive. Its scope has widely increased by including cloud services, online gaming and data storage, " says Gabhawalla.

Industry watchers say there will be practical difficulties in payment of such taxes if the overseas supplier has no presence in India. These notifications relate to service tax and is different from the equalisation levy of 6% introduced from June 1 for B2B online advertisements of Rs 1 lakh or more in a year, paid to overseas entities.

15% tax on downloads for foreign websites - ET Telecom


1 Jun 2013
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Govt is getting huge funds from taxes. Hope now highway and railway will stretch their arm across length and breadth of India



31 Mar 2011
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Sarkar said:
Govt is getting huge funds from taxes. Hope now highway and railway will stretch their arm across length and breadth of India

Already in work. Both roads and rails construction in full swing.
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