Introduction

The exemption given to service providers located abroad and providing taxable online information and database access or retrieval [OIDAR] services including electronic services in India, is being withdrawn by the government with effect from 1st December, 2016. Due to this step of the Government, the next time you download music, e-book, accounting software, anti-virus, website updates, images, text and information making available of database, games etc. from an overseas site or decide to buy some storage on a cloud from a Foreign Service provider, there would be service tax component of 15% (service tax 14%, Krishi Kalyan cess 0.5%, Swachh Bharat cess 0.5%) in addition to cost of purchase.

The Government has taken this step to provide a level playing field to Indian (domestic) OIDAR service provider. As per the current law in force, Domestic suppliers say of films/ images which can be downloaded by customers, already incur this service tax. However, if the supplier was, located abroad, 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.

Legal Position

The government of India has amended rule 9 of the ‘Place of Provisions of Services Rules’ (PPSR) 2012, which is for ‘online information and database access or retrieval services, by notification no. 46/2016-service tax dated 09th November 2016 and, deleted the provision of the place of the provision services, which provides that in case of the OIDAR, place of the provision will be outside India. 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 the December 1, 2016, the place of provisions of a service will be the location of the service recipient

Effects of this Amendments on Service Receivers

The service receiver’s purchase cost will be increased by 15% i.e. he has to pay an addition amount of 15% towards service tax (including Krishi Kalyan cess (KKC) and Swachh Bharat Cess (SBC)).

Effects of the amendment on Foreign Service Providers

This amendments will 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.
Such foreign online information and Database access or retrieval services provider will be required to take online registration from the Central board of the Excise and Customs, in specified form within 30 days from the date of the applicability of this amendment i.e. 01.12.2016. After registration foreign services will also be required to do routine compliance like payment of the online taxes and online filling of the return within statutory time.

Statutory Forms

From ST-1A: Application for registration in non taxable territory providing online information and database access or retrieval services.

From ST-2A: Certificate for registration to foreign OIDAR service provider

From ST-3C: Form for half yearly return

Statutory Time Line

  • For payment of the service tax : By 6th of the following months
  • For Filling of the Half yearly return :
    • For the period April to September: By 25th of the October
    • For the period October to March: By 25th of the April

How We Can Assist You?

  • Assisting in registration with Central Board of the Excise and Custom (CBEC), Government of India.
  • Assisting in depositing the service tax collected from Indian buyer to CBEC, GOI
  • Assisting in filling of the service tax return
  • Assisting in tax planning

Contact US

Contact Person: MR. Prakash Gupta
Address: Suit No. B-1, Sagar Apartment, 6, Tilak Marg
New Delhi-110001, India
Phone: + 91-11-2338 8753, 2338 2207
Mobile: +91-9811031841
Email: info@pkpconsult.com, pgupta@pkpconsult.com