Starting this December 2016, you will need to shell out more money while download e-books, movie, music, software and other digital content or paying for cloud hosting from a foreign website.

The Central Board of Excise and Customs (CBEC) through a special circular dated November 9, 2016, amended the ‘Place of Provisions of Services Rules’ (PPSR) for ‘online information and database access or retrieval services’. Which in turn adds a 15 percent service tax on all your downloads of digital contents and other services from foreign websites or service provider starting from 1st December 2016.

Currently, Indian suppliers of digital services incur this service tax. But if the supplier is outside India, the place of provision of service is also outside India, thus no service tax is payable by them. Foreign service providers incur tax only in respect of Business-to-Business (B2B) transactions. Till now the tax was exempt if the recipient of the foreign service is an individual, government, local body or government agency based in India.

Extra 15% Service Tax on Downloads & Cloud services from foreign websites

The amended essentially change the definition of ‘Place of Provisions of Services Rules’. According to the new amended, from 1st December 2016, the ‘place of provision of a service’ will be the location of the service recipient, that’s you. So every download of digital content or paying for cloud hosting or running advertising campaigns or even online gaming by an Indian individual from a foreign website will be subjected to a service tax of 15 percent.

Which all foreign services will incur the 15% Service Tax?

Mostly all Online information and database access or retrieval (OIDAR) services will be subjected to this new service tax. Some of that services include –

  • Downloading digital contents like e-Books, music, movies, TV shows, software and other intangibles that can be downloaded from the internet.
  • Cloud hosting services.
  • Online advertising (Google Adwords, Bing Ads etc).
  • Digital data storage services.
  • Data or information, retrievable or otherwise, to any person, in electronic form through a computer network.
  • Online gaming (Steam, Origin, etc)
  • Online subscription services (Netflix, PSN etc)

The sudden change from the government was caused by the pressure from domestic service providers. The government want to ensure the same level of playing field to Indian digital service providers and foreign service providers. But this will cause additional burden on the individual users, as foreign service providers will likely to collect this tax from the end user itself.

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