Service tax of 15% levied on music, e-books downloaded from overseas
The Dollar Business Bureau
The Ministry of Finance has issued a notification 49/2016-Service Tax dt. Nov 09, 2016, withdrawing the exemption given to taxable online information and database access or retrieval services (OIDAR) to B2C and other providers located in a foreign territory with effect from December 1, 2016. This was done with a view to give a level playing field to Indian service providers.
In short, the notification says that 15% of service tax will be levied on users who download music, e-books, or purchase storage facilities on a Cloud service from overseas service providers. This will come into effect from December 1, 2016 and will be reflected in the users' bills.
Till date users in India who downloaded movies incurred the service tax. But if the provider was based overseas, the tax was not levied on Indian users, government employees, people associated with the local bodies or agencies. Overseas suppliers incur the service charges only if there are B2B transactions wherein the recipient of the service resides in India. An exemption has been given to those B2B transactions wherein the recipients download informational databases such as subscriptions for tax journals etc.
The salient features of the levy are:
- A simplified online mechanism of taking registration has been prescribed and going forward registration will be granted with the submission of forms online too
- Payment of taxes and filing of returns too can be done going forward online.
The CBEC has also amended the PPSR (Place of Provisions Services Rules) related to online information and database access or retrieval services, which could have a significant impact on our bills.
Earlier there was no service charge if the place of provision was overseas, and hence no service tax was levied on individuals, govt bodies etc. But with this amendment all downloads in India will be subject to service tax. The amendments also impact overseas companies that provide various services like music, e-book services, gaming services, advertisements, cloud hosting, web subscriptions etc.
Going forward with the change in the amendments, the definition of “online information and database access or retrieval services” has been changed to mean "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.”
The overall impact of this service will be an increase in the charges for the end-user who downloads these services, as the overseas service provider is likely to collect the cost from the consumer.
A detailed clarification with regard to the changes in the notification has been given by the Ministry. Some of the important ones have been reproduced from the CBEC website given below.
Q. Are all cross-border B2C services provided in the taxable territory made taxable with effect from December 1, 2016?
No. Only cross-border B2C OIDAR services provided in the taxable territory have been made taxable w.e.f 1st December, 2016. Other cross-border B2C services continue to be exempted. Further, cross-border B2B services have been taxable since prior to December 1, 2016, under reverse charge mechanism.
Q. Do OIDAR services have the same meaning as defined in the Place of Provision of Service Rules, 2012? If no, what do we mean by OIDA Rservices?
No. The existing definition of OIDAR services given in PoPSR, 2012 [clause (l) of rule 2] has been redefined to assign the OIDAR services the same meaning as assigned to it in the clause (ccd) of sub-rule 1 of rule 2 of the Service Tax Rules, 1994 [inserted vide notification No. 48/2016-ST].
Q. What do we mean by Cross Border B2C OIDAR services provided in taxable territory in India?
Cross border B2C OIDAR services means online information and database access or retrieval services provided by a person located in non-taxable territory to a ‘non assesse online recipient’ in taxable territory in India.
Non assesse online recipient has been defined in Service Tax Rules, 1994 [rule 2(1)(ccba)] to mean Government, a local authority, a governmental authority or an individual receiving OIDAR services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory [notification No. 48/2016-ST refers].
Q Is there any change regarding cross borderB2B [business to business] services provided in India? Will the cross border B2B OIDAR services provided in taxable territory in India to a business entity be taxed under forward charge or reverse charge?
No. The current dispensation of taxing cross border B2B services under reverse charge mechanism i.e. the recipient business entity pays service tax, continues.
Cross-border OIDAR services provided in taxable territory in India to a business entity will be taxed under reverse charge i.e. the business entity receiving the services will pay tax under reverse charge.
Q. Even though the cross border OIDAR services are being made leviable to service tax with effect from December 1, 2016, will these services not get exempted by means of any existing exemption?
Vide notification No. 47/2016-ST, the existing exemption [Sl. No. 34(a) of notification No. 25/2012-ST] to services provided by a person located in a non- taxable territory and received 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, will not be available for OIDAR services received by such persons w.e.f 1st December, 2016. OIDAR services have been assigned the same meaning as assigned to it in the clause (ccd) of sub-rule 1 of rule 2 of the Service Tax Rules, 1994 [inserted vide Notification no. 48/2016-ST].
Q. What type of services will be covered under OIDAR services?
OIDAR services covers services which are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention. In practice, this can be either:
- where the provision of the digital content is entirely automatic eg, a consumer clicks the Buy Now button on a website and either:
the content downloads onto the consumer’s device, or
the consumer receives an automated e-mail containing the content
where the provision of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an OIDAR service.
All electronic services that are provided in the ways outlined above are OIDAR services.
Q. Who shall be liable to collect and discharge the service tax liability in cases of provision of cross border B2C OIDAR services?
Service providers providing OIDAR services to a non-assesse online recipient in taxable territory would be responsible for collection of service tax and remitting the same to the Government of India. However, the service provider in the non-taxable territory may appoint an agent in the taxable territory who will be person liable for paying service tax.
Q. When will the liability to collect and discharge service tax for providing cross border B2C services in taxable territory, be on an intermediary/electronic platform and not on service provider in the non-taxable territory?
When an intermediary located in the non-taxable territory including an electronic platform, arranges or facilitates provision of cross-border B2C OIDAR service but does not provide the main service on his account, the intermediary 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 when such intermediary satisfies all the following conditions, namely :-
the invoice or customer’s bill or receipt issued or made available by such intermediary taking part in the provision clearly identifies the service in question, its provider in non-taxable territory and the service tax registration number of the provider in taxable territory;
the intermediary involved in the provision 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 provider of such services;
the intermediary involved in the provision does not authorise delivery;
the general terms and conditions of the provision are not set by the intermediary involved in the provision but by the service provider:
Thus, in the context of cross-border B2C OIDAR services provided to individual consumers, either the underlying supplier of services or the intermediary/digital platform operator, depending on who is seen to be providing the electronic services, would be required to collect service tax from consumers and remit the tax to the Government.
When the service provider in non-taxable territory is represented for any purpose in taxable territory by a person, then such person is deemed to be the person liable for paying service tax [notification No. 48/2016-ST refers].