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Even The Google will not have solution to GST

The new indirect tax “GST” has reached the doorstep of Indian indirect tax home to replace old traditional taxes (CST, Excise, Cesses, Entertainment taxes, Entry tax and others). It’s not only replacing the old laws but has come with lots of new provisions. Through it, Indian government is trying to tax all possible supplies that are happening in India even if the supplier is located outside India.

Yes!!! Even the companies like Google, Amazon, Facebook, Bloomberg, etc will be required to pay GST in India under new tax regime, where these companies are providing “Online data access or retrieval” services and user pays subscription charges.

GST is destination based tax on consumption of goods and services. That means, the tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as “Place of Supply”.

Let us first understand what exactly “Online information and database access or retrieval services” means. The new IGST Act throws the light on the said service in definition section, which says:

“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:

  1. Advertising on the internet
  2. Providing cloud services
  3. Provision of e-books, movies, music, software and other intangibles through internet or telecommunication networks
  4. Online supplies of digital content (movies, television shows, music and the like)
  5. Providing data or information, retrieval or otherwise, to any person in electronic form through a computer network
  6. Digital data storage
  7. Online gaming”

The definition of the service has covered a wider scope to tax in its ambit. However the definition is more or less same if we compare the same with what it is now under service tax law.

Now, the question is what makes the difference in tax position for the said service as it is under current tax scenario and as it will be under new tax regime? The solution hunting takes us to “Place of supply” under new GST tax Act. Currently under service tax it is the location of Service Provider, however it has changed as below under new GST Act:

Place of Supply for “Online information and database access or retrieval services”

Situation A: Where the location of supplier and recipient both located in India

No specific provision has been stated under Place of supply provision for given situation, therefore we have to look into general provision for determining the place of supply for the given situation, which says:

“The place of supply of service shall be:

  1. If the service is provided to a registered person, then the location of such person.
  2. If the service is provided to a unregistered person, then the location shall be :
    i. The location of the recipient where the address on records exist; and
    ii. The location of the supplier of services in other cases. “

Crux: In either case tax would be payable either at the location of service receiver location or at the service provider location.

Situation B: Where the location of supplier OR the location of recipient is outside India

The place of supply for a given situation specifically states that the location shall be the location of service recipient.

However the provision has specified some conditions and on fulfillment of any two conditions it shall be deemed that the location of service recipient is located in Taxable territory. The conditions are:

  1. The location of address presented by the recipient of services through internet is in the taxable territory.
  2. The credit card or debit card or store value card or charge card or smart card or any other card by which the recipient settles payment has been issued in the taxable territory.
  3. The billing address of the recipient of services is in the taxable territory.
  4. The internet protocol address of the device used by the recipient of services is in the taxable territory.
  5. The bank of the recipient of services in which the account used for payment is maintained in the taxable territory.
  6. The country code of the subscriber identify module card used by the recipient of services is of taxable territory.
  7. The location of the fixed land line through which the service is received by the recipient is in the taxable territory.

Crux: From above we can say that the government has tried to cover maximum situations where the said supply can be taxed in India.

Special provision for Payment of taxes by a supplier of Online Information and database access or retrieval services

Situation: Where the location of supplier of service is in a non-taxable territory and received by a non-taxable online recipient

  • The supplier of service (Located in non-taxable territory), shall be required to pay tax on such supply.
  • Where the service is provided through an intermediary (Who arranges or facilitates the supply of such services) located in non-taxable territory, then such intermediary will be required to pay tax on such supply, if it conforms to some specified conditions.

Procedure for payment of taxes in above mention situation

  1. The supplier shall take single registration under the “Simplified Registration Scheme” to be notified by the government.
  2. Where the supplier has any person located in taxable territory, who is representing such supplier for any purpose, then such person shall get registered itself and pay Tax on behalf of the supplier.
  3. If the person neither have any physical presence in taxable territory nor have any representative in taxable territory, then such supplier will be required to appoint any person in the taxable territory for the purpose of paying tax and such person will be liable for payment tax.

We cannot imagine the life of future business without “Online information and database access or retrieval services”, in modern business style this has become an essential part of every business. Now a days almost each and every business is moving towards digital data storage, internet advertisement and others, for its development and expansion.

The businesses must be ready for high cost of such services under the GST regime.

(Queries and suggestions are welcome)

Written By:
CA Akshay Jain
Contact no: 9654941955
E-Mail Id: Ca.jainakshay@gmail.com

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