After bringing the GST into the tax regime, the government will now charge 15% service tax on all things bought from foreign websites including e-books, music, movies, internet advertising, providing cloud services, online games, software and other intangible products.
This tax on all purchases made from foreign portal will be valid from 1 December and will attract an additional service tax component of 15%.
What Is The Current Taxation Practice And How Will It Change?
In case you are wondering that why government is suddenly taxing the purchases made online, then please be informed that you are already charged this service tax when you shop from local e-tailers.
As per the current practice, if the supplier is located in a foreign country and the buyer (individual, government, local body or a govt. agency) is based in India then no service tax is charged.
The tax is levied only in case of B2B transactions when the recipient is based in India. Also, the buyers in India are exempt from this tax if they are buying for informational purposes like subscription for internal tax journals.
On November 9th, the Central Board of Excise and Customs (CBEC) amended the ‘Place of Provisions of Services Rules’ (PPSR) for ‘online information and database access or retrieval services’. This amendment changes the ‘Place of provision of service’ to the ‘Place of the recipient’ and will thus tax the transactions even when buying (in India) from an overseas supplier.
“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,” said Sunil Gabhawalla, CA and Indirect Tax expert.
This service charge on purchases made on an overseas portal will thus increase your bill.
“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.
Another change in the amendment is the change in the definition of ‘Online Information and Database access or retrieval services’ which now means those 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.”
This would create a level-playing field for all online portals, domestic and foreign, but at the cost of increasing your bill for transactions made on foreign portals.
Source: TOI"Now, Govt Will Levy 15% Service Tax On Music, Movies, E-Books Downloaded From Foreign Portals!",