Sunday, November 13, 2016

Now, Pay additional 15% service tax on music, e-books sold on foreign portals


If the overnight ban on Rs 500 and Rs 1,000 currency notes has left you stunned, get ready for another surprise move by the Indian government. If you’re one of those that downloads music, movies, e-books or even cloud storage space from overseas service providers, get ready to pay more. Starting December 1, a new service tax component of 15 percent will be added to your bill.

Domestic suppliers that let you download movies in India already incur this service tax. However, the tax doesn’t apply to overseas suppliers, even if the recipient is local body, individual or a government agency based in India. These overseas suppliers only incur service tax for business-to-business (B2B) transactions where the recipient is in India. Additionally, some exemptions are available for B2B transactions in case the supply is related to information databases, like subscription for international tax journals.

Now, in a surprise move, the Central Board of Excise and Customs (CBEC) has four notifications dated November 9 for – ‘Place of Provisions of Services Rules’ (PPSR) for ‘online information and database access or retrieval services,’ which will impact your bill. In the amendment, CBEC has changed the definition of ‘place of provision of service.’ 

Starting December 1, the ‘place of provision of a service’ will be the recipient’s service location. “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 authorized representative will need to register in India and pay the service tax,” chartered accountant and indirect tax expert Sunil Gabhawalla told ET.

From an industry perspective, once the new rule comes into an effect, there will be level-playing field between both overseas and domestic suppliers. “Since the overseas service provider is likely to collect this tax from the end user who downloads these services, it will increase the cost for the consumer,” Gabhawalla added. 

As the new service tax component comes into play, the definition of ‘online information and database access or retrieval services’ also changes. “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 definition is very extensive. Its scope has widely increased by including cloud services, online gaming and data storage,” he added.

Going by the CBEC notification, if you are the one who has purchased cloud services from OneDrive and Google Drive to name a few, or purchase software, e-books, movies or music from sites such as Amazon, Apple’s iTunes, additional 15 percent tax will be added to your bill. This is also true for online gaming, software purchases such as Windows OS, Adobe suite, Microsoft Office Suite and more.

However, industry watchers believe that there could be practical difficulties in payment of such taxes, especially if the overseas supplier doesn’t have the presence in India. Also, the current service tax is different from 6 percent tax that was introduced from June 1 for B2B online advertisements of Rs 1 lakh or more in a year.





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