Service Tax on receipt of services from outside India (Import of Services)

With regards to the import of services from beyond the borders of India, and subsequently received in India, what are the statutory provisions that govern the taxation of these particular services?

Under Section 66A of the Finance Act, 1994, which was included and came into effect from the 18th of April 2006, the provisions outlined there in state that a service that is provided shall be deemed taxable and treated in a similar manner as in the case of a recipient himself or herself providing that particular service within India under the following conditions:

  • If a taxable service is provided or is in the process of being provided by an individual who is carrying out a business in any country, with the exception of India, and is received by an individual who either carries out a business, owns a fixed installation or usually resides in or has a fixed address within the borders of India
  • If a taxable service is provided or is in the process of being provided by an individual through the means of a permanent installation that he or she owns in any country, with the exception of India, and is received by an individual who either carries out a business, owns a fixed installation or usually resides in or has a fixed address within the borders of India
  • If a taxable service is provided or is in the process of being provided by an individual who possesses a fixed address or whose usually resides in any country, with the exception of India, and is received by an individual who either carries out a business, owns a fixed installation or usually resides in or has a fixed address within the borders of India

If the service that is deemed to be taxable is provided from beyond the borders of India, will the recipient of this particular service be required to pay any tax?

If the individual or entity that is providing the service does not possesses any form of functioning business or any kind of permanent installation within the borders of India, then the person receiving this service will be required to pay tax on the service her she has received. This is also applicable to an individual or entity who conducts any form of business through avenues such as a an agency or branch in any country around the world, including India. In this case, the individual or entity will be treated in a similar manner as an individual or entity who owns a functioning business within the borders of that country.

If a situation arises wherein the provider of the taxable service owns functioning businesses in multiple countries, then which country should be considered when determining the location from which the taxable service was provided to the recipient?

As per the provisions outlined under Section 66A (2) of the Finance Act, 1994, if the service provider is located beyond the borders of India, and owns functioning businesses in multiple countries, then the country from which the business that the taxable service has been provided from will be taken into consideration. In other words, the country in which the business establishment owned by the provider is located, and which has provided the service to the recipient, shall be considered for this purpose.

With regards to a body corporate, what constitutes a ‘usual place of residence’?

With regards to a body corporate, a ‘usual place of residence’ refers to the location or place where the body corporate has been constituted through legal means, or where it was established and subsequently incorporated. This can be further elucidated in greater detail as per explanation 2 found under sub-section 2 of Section 66A of the Finance Act, 1994,

As per the rules governing taxation of services, what components make up the import of services?

As per the Taxation of Services Rules, 2006, that deals with taxable services provided from beyond the borders of India and subsequently received in India, there are three distinct categories under which service conditions and transactions from beyond Indian borders are regarded as import of services. These categories are as follows:

  • Services specified as per Rule 3(i) of the Taxation of Services Rules 2006 - Services specified under this rule are deemed to be provided in the form of property or assets located within India, and which are considered to be immovable
  • Services specified as per Rule 3(ii) of the Taxation of Services Rules 2006 - Services specified under this rule relate to those taxable services that are only provided partially to a recipient within India
  • Services specified as per Rule 3(iii) of the Taxation of Services Rules 2006 - Services specified under this rule relate to all taxable services not mentioned as per Rule 3(i) and Rule 3(ii) (with certain notable exceptions) that are provided to a recipient who is situated within the borders of India. These taxable services relate to those that entail the carrying out of any kind of business, financial or commercial activity

Based on these categories, every service transaction that takes place is to be scrutinised on its own in order to truly determine whether it fulfills the conditions required to be considered an import of service.

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