New Service Tax Implication on Digital Supplies in India

16/11/2016

Dated: 16/11/2016

 

Digital Supplies (Netflix tax) Framework in India

 

Department of Revenue under the Govt of India through a series of notification all dated the 9th November, 2016 has informed that: exemption from service tax on cross border B2C OIDAR services (digital supplies) provided online/electronically from a non-taxable territory to consumers in taxable territory in India will now be taxed at the hands of the supplier with effect from  1st December 2016. 

  1. At present services received in taxable territory in India from outside the taxable territory by Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession are exempted [cross border B2C (business to consumer) services provided in taxable territory]. On the other hand, services received by other persons in taxable territory from non-taxable territory [cross border B2B (business to business) services] are taxable under reverse charge i.e. service recipient in taxable territory pays tax.
  2. With effect from 1st December 2016, whereby service tax would be chargeable on online information and database access or retrieval [OIDAR] services(digital supplies) provided by any person located in non-taxable territory and received by Government, local authority, governmental authority, or an individual in relation to any purpose other than commerce, industry or any other business or profession [cross border B2C (business to consumer) OIDAR services(digital supplies) provided in taxable territory]

 

4. Indicative List of OIDAR services(digital supplies)

– Website supply, web-hosting, distance maintenance of programmes and equipment;

-Website hosting and webpage hosting;

– Automated, online and distance maintenance of programmes;

-Remote systems administration;

– Online data warehousing where specific data is stored and retrieved electronically;

– Online supply of on-demand disc space.

– Supply of software and updating thereof;

– Accessing or downloading software (including procurement/accountancy programmes and anti-virus software) plus updates;

– Software to block banner adverts showing, otherwise known as Banner blockers;

– Download drivers, such as software that interfaces computers with peripheral equipment (such as printers);

– Online automated installation of filters on websites;

– Online automated installation of firewalls.

– Supply of images, text and information and making available of databases;

– Accessing or downloading desktop themes;

– Accessing or downloading photographic or pictorial images or screensavers;

–  The digitised content of books and other electronic publications;

– Subscription to online newspapers and journals;

– Weblogs and website statistics;

– Online news, traffic information and weather reports;

– Online information generated automatically by software from specific data input by the customer, such as legal and financial data, (in particular such data as continually updated stock market data, in real time);

– The provision of advertising space including banner ads on a website/web page;

– Use of search engines and Internet directories.

 – Supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;

– Accessing or downloading of music on to computers and mobile phones;

– Accessing or downloading of jingles, excerpts, ringtones, or other sounds;

– Accessing or downloading of films;

– Downloading of games on to computers and mobile phones;

– Accessing automated online games which are dependent on the Internet, or other similar electronic networks, where players are geographically remote from one another.

–  Supply of distance teaching.

– Automated distance teaching dependent on the Internet or similar electronic network to function and the supply of which requires limited or no human intervention, including virtual classrooms, except where the Internet or similar electronic network is used as a tool simply for communication between the teacher and student;

-Workbooks completed by pupils online and marked automatically, without human intervention. 

  1. Registration of suppliers of cross border B2C OIDAR (DIGITAL SUPPLIES) services in India is mandatory in India. If the service provider does not have a physical presence in India, then he can appoint an authorized person/agent to comply with the service tax laws and remit tax to the Government .In case the service provider is represented by authorised person or agent, such person may be allowed to take registration on behalf of service provider and comply with all services.
  2. Person receiving such services shall be deemed to be located in the taxable territory if any two of the following non-contradictory conditions are satisfied, namely :-
  3. the location of address presented by the service recipient via internet is in taxable territory;
  4. 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;
  5. the service recipient’s billing address is in the taxable territory;
  6. the internet protocol address of the device used by the service recipient is in the taxable territory;
  7. the service recipient’s bank in which the account used for payment is maintained is in the taxable territory;
  8. the country code of the subscriber identity module (SIM) card used by the service recipient is of taxable territory;
  9. the location of the service recipient’s fixed land line through which the service is received by the person, is in taxable territory.

Further, the person in the taxable territory receiving such services shall be deemed to be ‘non-assessee online recipient’ if such person does not have a service tax registration in the taxable territory. 

  1. The Notifications which have been issued also clarifies issues such as ;- taxable territory; changes made in statutory /legal provisions and when they are coming into effect ;what services would not be considered OIDAR services(digital supplies);who is considered as not taking part in providing the service of OIDAR services(digital supplies);what is the procedure of registration; how to deposit service tax and file service tax returns; threshold exemption available to such transactions; how would the service provider in non-taxable territory compute the value of his/her turnover in Indian rupees; when does the liability of service provider located in non-taxable territory arise ?How would he/she pay the tax?;how many returns are required to be filed and what is the frequency of returns; etc.,

For Further Advisory on this matter please contact-

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CP: Mr. Ravi Jha
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