Regarding taxation for online business

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 July 2015 Hi,

I run an online business with the following income streams and need advice on whether I need to register and pay for sales tax or service tax for any of them:

1. Website development and maintenance services. All customers outside India. Payment collected via paypal and via a reseller. Even the reseller pays to us in our paypal accounta and from paypal account, we transfer it to our Indian Bank account. The total amount earned is above 10 lakhs p.a. but this is an export of services. I have read that this is exempt from service tax, but I need confirmation. Do we need to register/collect service tax?

2. Online sale of digital products such as Question banks and study notes in PDF format. Sales all around the world. Total sales below 5 lakhs. Do we need to register for sales/VAT, etc for this?

3. Advertising income from google. We have a website on which we have placed google ads and we earn money from these google ads. Total income per year is about 4 lakhs. Do we need to pay service tax or sales take on this?

4. Affiliate income. We earn affiliate commission by selling digital products of various companies. Such as affiliate commission on web hosting, online software, study notes, question banks, etc. Total income is about 1 lakh p.a. but may increase substantially. Since we are reselling and just taking commission, I am sure there is no tax involved, but would still like to confirm.

I really appreciate any help regarding any of the above points.

Thank you,

CA. Chikkerur C R

CA. Chikkerur C R (Expert)
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29 July 2015 Dealing with Goods - Register with Sales Tax. No matter type of sale or payment. Advertisement and www design comes under service tax. Better to register without looking for exemption of 10 lakh

Querist : Anonymous

Querist : Anonymous (Querist)

29 July 2015 1. The thing is that these are digital goods and not physical. Also, they are sold online to customers outside India. That's why i wanted to know if sales tax is required.

2. regarding service tax, again, it's all export of IT services. i am not worried about exemption. But legally, am I required to collect and pay service tax for export of services?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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20 July 2025 Here’s a clear summary for your questions on taxation for your online business in India (as of 2015, pre-GST):

1. Website Development and Maintenance Services (Export of Services)
Service Tax on Export of Services:
Export of services is zero-rated under service tax if certain conditions are met (mainly payment received in convertible foreign exchange, supplier and recipient located in different countries, etc.).
Since your customers are outside India, and payments come through PayPal (which is foreign exchange convertible), your services qualify as export of services.
You do not have to pay service tax on these services but you must register for service tax because your turnover exceeds the threshold (Rs. 10 lakhs per year).
After registration, you can claim refund of service tax paid on inputs/input services (Input Service Credit) used for providing export services.
Relevant Rule: Notification No. 6/2012-Service Tax (Zero-rating of export of services).
2. Online Sale of Digital Products (Question Banks, PDFs)
These are goods of a digital nature (intellectual property).
As sales are made to customers outside India, this again constitutes export of goods.
Sales Tax (VAT) is generally applicable on sale of goods within India.
For goods exported outside India, no VAT or sales tax is applicable (zero-rated).
If sales turnover is below the VAT registration threshold (which varies by state, usually around Rs. 5 lakhs), you may not be required to register for VAT.
But if you have presence (stock, office) in any state, VAT registration may be needed.
3. Advertising Income from Google
Income from Google Ads is considered service income.
If your turnover from all services exceeds Rs. 10 lakhs, you must register for service tax.
Advertising services are taxable services under service tax law.
Even though payment comes from outside India, this is not export of service because you are the service recipient (Google) located outside India and you provide ad space in India (generally).
So, service tax is payable on such advertising income.
4. Affiliate Income
Affiliate income is commission income (service income).
Taxability depends on whether the commission is from Indian or foreign companies.
If commission is earned from Indian companies and exceeds Rs. 10 lakh threshold, service tax registration and payment is required.
If commission is from foreign companies and qualifies as export of service, then zero-rated as explained above.
Summary Table
Activity Taxable? Need to Register? Tax Payable? Notes
Website development & maintenance (export) No (zero-rated) Yes (if turnover > 10L) No service tax payable on export Must maintain export conditions
Online sale of digital goods (export) No VAT on export No (if below threshold) No VAT Confirm state rules
Google Ads Income (advertising service) Yes Yes (if turnover > 10L) Service tax payable Advertising service taxable
Affiliate Commission Yes (if Indian clients) Yes (if turnover > 10L) Service tax payable (if Indian clients) Foreign clients = export service
Important Notes:
Service tax registration threshold was Rs. 10 lakhs aggregate turnover (from all taxable services).
Export of services is zero-rated but requires compliance (invoice in foreign currency, receipts, service export documentation).
For VAT, check your state-specific rules for threshold and registration requirements.

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