The Central Government of India amended the service tax law in relation to the provision of electronic services to include services that are provided by a service provider located outside India to a service recipient located in India. Place of supply of electronic services has changes as from 1 of December 2017. The ‘place of provision’ of electronic services has changed from ‘location of service provider’ to ‘location of service recipient’. Therefore electronic services provided by an entity located outside India to customers in India will get covered under the ambit of the service tax law.
Under the old law electronic services were defined as online information and database access or retrieval services however restricted to services provided in relation to online information and database access, retrieval or both in electronic form through a computer network. The Central Government has also expanded the scope of electronic services considerably. The new definition of electronic services covers a wide range of services that are provided over the internet or any electronic network.
Key services covered under the new definition of electronic services:
- Cloud services
- Provision of software, e-books, movies, music and other intangibles via telecommunication networks or the internet
- Advertising on the internet
- Digital data storage
- Online gaming
- Website hosting, supply and remote maintenance of software
- Provision of data or information, retrievable or otherwise, to any person in electronic form through a computer network
- Online supplies of digital content (movies, television shows, music, etc.) and software
- Automated distant training’s provided with limited or no human intervention
The person liable to pay service tax will depend upon the type of transaction. In case of business-to-business (B2B) transactions, the service tax liability needs to be accounted for by the service recipient. However, in case of business-to-customer (B2C) transactions, the service provider is responsible for service tax.
Key next steps
- Identifying the type of customer in India: B2C or B2B
- Identifying a representative/agent in India who can undertake compliances on behalf of the service provider
- Prepare documents and obtaining registration under the service tax law in India
- Change in invoice format to comply with service tax requirements
- Customer communication (depending on whether or not the service provider chooses to pass on the service tax liability)
If you have any questions please do not hesitate to contact Pratik Jain, Leader and Partner Indirect Tax Team India in +91 0124 330 6507 or firstname.lastname@example.org.