Service Tax in India
By Himanshu Joshi, Accounts Associate, Dezan Shira & Associates
Mar. 27 – Service taxes were first introduced to India through the Finance Act (1994) in the 1994-95 Union Budget, however the service tax rules have gone through various changes since their introduction. There was previously an exhaustive list of services that were subject to service tax, but since the 2012-13 Union Budget, a new concept has been introduced.
Services of all kinds are now subject to a service tax, and only those that are mentioned in the “Negative List” and those specifically noted by the government of India are exempted from service tax.
There has been much confusion among service providers as to when a service becomes taxable. With the service tax rules being significantly changed, it is now doubly necessary for enterprises in India to fully understand their tax obligations so as to determine whether or not tax shall be charged on a service.
A study of the “Place of Provision of Services Rules, 2012,” which came into effect on July 1, 2012, will allow for the concept of service taxability to be better understood.
A service is said to be taxable when the place of the provision of the service is in a taxable territory. A “taxable territory” refers to a place where service tax laws apply, which is throughout the whole of India except for Jammu & Kashmir.
The place of the provision of a service is generally defined as the place where the service receiver is. There are, however, certain exceptions to this, as outlined below.
Performance based services
The place of the provision of the following services shall be the location where the services are actually performed, specifically:
- Services provided in respect of goods that are required to be made physically available by the service recipient to the service provider, or to a person acting on behalf of the service provider.
When such services are provided from a remote location by way of electronic means, the place of provision is to be the location in which the goods are situated. This sub-rule does not apply in cases where a service is performed for goods that are temporarily imported into India for repairs, reconditioning or reengineering for re-export (subject to further conditions).
- Services provided to an individual, represented either as the recipient of a service or a person acting on behalf of the recipient, which require the physical presence of the receiver.
Services relating to immovable property
The place of the provision of services provided directly in relation to immovable property, including services provided in this regard by experts and estate agents, the provision of hotel accommodation by a hotel, inn, guest house, club or campsite, and services for carrying out or coordinating construction work (including architecture or interior decoration), shall be the place where the immovable property is located or intended to be located.
Services relating to events
The place of the provision of services provided by way of admission to, or organization of, a cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar event, and of services ancillary to such admission, shall be the place where the event is actually held.
Services provided at more than one location
Where any service mentioned above is provided at more than one location, the place of the provision of the service shall be the location where the greatest proportion of the service is provided.
Specified services
The place of the provision of the following services shall be the location of the service provider:
- Services provided by a banking company, a financial institution or a non-banking financial company to account holders;
- Online information and database access or retrieval services;
- Intermediary services;
- Services that consist of hiring a means of transport (up to a period of one month).
Transported goods
The place of the provision of services relating to the transportation of goods, other than by way of mail or courier, shall be the place of the destination of the goods.
Passenger transportation service
The place of the provision of a passenger transportation service shall be the place where the passenger embarks on the conveyance for a journey.
Services provided on board a conveyance
The place of provision of services provided during the course of passenger transportation, including services intended to be wholly or substantially consumed while on board, shall be the first scheduled point of departure of that conveyance for the journey.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
For further details or to contact the firm, please email india@dezshira.com, visit www.dezshira.com, or download the company brochure.
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