B2C music, e-books, cloud services from foreign portals will now attract service tax

November 14, 2016
1 min read

[By Shaleen Shah (Partner), VNCA]

If you download music or an e-book from a site within India, or buy some storage on a cloud from a domestic service provider within India, it attracts service tax.  However if such downloads are made or storage is purchased from an overseas site service tax does not apply if the service recipient is an individual, government, local body or government agency based in India.  From 1-Dec-2016, the cost of such services / downloads will increase as such transactions will now attract service tax.

Until now, in the case of `online information and database access or retrieval services’, cross border B2C services provided by a person from outside India and received by a person in India are outside the levy of service tax.  Such cross border B2B services are already taxable under the reverse charge mechanism.

Through four separate inter-linked Notifications dtd.9-Nov-2016 [No. 46/2016-ST, 47/2016-ST, 48/2016-ST and 49/2016-ST], the Central Board of Excise and Customs (CBEC) has brought such B2C online information and database access or retrieval services within the ambit of service tax w.e.f. 1-Dec-2016.

The definition of ‘online information and database access or retrieval services’ has also been changed. It now 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".

This includes services such as internet advertising, providing cloud services, e-books, movies, music, software and other intangibles via telecommunication networks or internet, providing data or information in electronic format via a computer network, online supply of digital content, digital data storage and online gaming.

From an industry perspective, this will bring a level-playing field between domestic and overseas suppliers.

CBEC has also come out with at detailed Circular explaining the amendments and giving indicative lists of transactions which would be affected by the said amendments.

These notifications relate to service tax and are different from the Equalisation Levy of 6% on B2B e-commerce transactions applicable from 1-Jun-2016.

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