Notification No. 48/2016-Service Tax-Online Shopping Set To Become Expensive

If you have been using services such as:

1. Renting or downloading of movies or music
2. Buying eBooks
3. Availing cloud based services
4. Buying hosting and email services
5. Online gaming

From a company which is not based in India, then all these are going to become expensive as these  companies have to pay service tax on it effective 1^st Dec-2016

So the cost is going to increase by 15%

This change is covered by Notification no.48/2016.

Some of the things covered under this notification are

• Providing of Online Information and Database access or Retrieval Services by a person who is in non-taxable territory to a non-assesse online recipient in taxable territory.
•       Definition of Online Information and Database Access or Retrieval Services
•       Definition of Non-Assesse  Online Recipient
•       Who Has To Charge Service Tax
•      Conditions for Establishing That Recipient of Service is in Taxable Territory
•      Mode of Registration under Service Tax

Definition of Online Information and Database Access or Retrieval Services

Online information and Database Access or Retrieval services 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 and includes electronic services such as

•  Advertising on the internet
•  Providing cloud services
•  Provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet
•  Providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network
• Online supplies of digital content such as movies, television shows, music, etc.
• Digital data storage
• Online gaming

Definition of Non-Assesse Online Recipient

Non-assesse online recipient means Government, a local authority, a governmental authority or individual receiving online information and database access or retrieval services in relation to any purpose

Other than commerce, industry or any other business or profession, located in taxable territory

Who has to Pay Service Tax?

1. Provider of Services Located in a Non-Taxable Territory
2. An intermediary located in the non-taxable territory including an electronic platform, a broker, an agent or any other person, by whatever name called, who arranges or facilitates provision of such service

but does not provides the main service on his account shall be deemed to be receiving such services from the service provider in non-taxable territory and providing such services to the non-assesse online recipient except in following cases

• the invoice or customers bill or receipt issued or made available by such intermediary taking part in the supply clearly identifies the service in question, its supplier in non-taxable territory and the service tax registration number of the supplier in taxable territory
•  The intermediary involved in the supply does not authorise the charge to the customer or take part in its charge i.e. intermediary neither collects or processes payment in any manner nor is responsible for the payment between the non-assesse online recipient and the supplier of such services
• The intermediary involved in the supply does not authorise delivery
•  The general terms and conditions of the supply are not set by the intermediary involved in the supply but by the service provider

Conditions for Establishing That Recipient of Service is in Taxable Territory

• The location of address presented by the service recipient via internet is in taxable territory;
• The credit card or debit card or store value card or charge card or smart card or any other card by which the service recipient settles payment has been issued in the taxable territory
• The service recipient’s billing address is in the taxable territory
•  The internet protocol address of the device used by the service recipient is in the taxable territory
• The service recipient’s bank in which the account used for payment is maintained is in the taxable territory
• The country code of the subscriber identity module (SIM) card used by the service recipient is of taxable territory
•  The location of the service recipient’s fixed land line through which the service is received by the person, is in taxable territory
• Also a person receiving such services shall be deemed to be a non-assesse online recipient, if such person does not have service tax registration under these rules
• How to Register Under Service Tax

An application for registration in form ST-1A for registration within a period of thirty days from the date on which the service tax under section 66B of the Act is levied or the person located in non-taxable territory has commenced supply of taxable services in the taxable territory in India and notwithstanding anything contrary in these rules, the registration shall be deemed to be granted in form ST-2A from the date of receipt of the application

What Does It Mean For Companies?

It means that if you are providing services in the form of database access, or online subscription like renting of movies, books or any other services as defined above, you have to charge 15% to Indian customers who are not registered under service tax. Typically this will apply if you are operating in B2C Model

For more information please contact us