Service tax applicability for translation agency services
This query is : Resolved
28 November 2015
Hi,
I am currently owning a translation agency. The process is I get work from abroad clients, usually from European countries. I outsource the work to the native language experts to get the work done.
To be more clear, i take up german translation jobs from outside India and get it done by a native german. And my import of services exceed 10 lakh.
Do it have to pay service tax for any amount exceeding 10 lakh?
If i have to pay, then i would be paying huge sum as tax. It would be huge if i have to pay income tax and service tax. Please clarify on this matter
I am currently owning a translation agency. The process is I get work from abroad clients, usually from European countries. I outsource the work to the native language experts to get the work done.
To be more clear, i take up german translation jobs from outside India and get it done by a native german. And my import of services exceed 10 lakh.
Do it have to pay service tax for any amount exceeding 10 lakh?
If i have to pay, then i would be paying huge sum as tax. It would be huge if i have to pay income tax and service tax. Please clarify on this matter
28 November 2015
You have to pay service tax for import of services i.e. service of native German. For export of service no service tax payable.
For import of service for the first year only you have to pay service tax in excess of 10 lacs from next year service tax applicable on full amount.
Unless your earnings are huge you are not likely to pay huge service tax and income tax. You are paying only part of your earnings.
For import of service for the first year only you have to pay service tax in excess of 10 lacs from next year service tax applicable on full amount.
Unless your earnings are huge you are not likely to pay huge service tax and income tax. You are paying only part of your earnings.
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28 November 2015
Hi Sir,
I have crossed the limit of 10 lakh in my first year. But if i have to pay the service tax on full amount, it would be impossible for me to paym For example, if i get a income worth 20 lakh, i would be spending 15 lakh for import of services. So that means, i have to pay 2.5 lakh on servixe tax and .5 lakh income tax. It would amount to more than half of my actual earnings going in the way of tax..
Is there any provision for getting a deduction in a case like this?
I have crossed the limit of 10 lakh in my first year. But if i have to pay the service tax on full amount, it would be impossible for me to paym For example, if i get a income worth 20 lakh, i would be spending 15 lakh for import of services. So that means, i have to pay 2.5 lakh on servixe tax and .5 lakh income tax. It would amount to more than half of my actual earnings going in the way of tax..
Is there any provision for getting a deduction in a case like this?
28 November 2015
Hi Sir,
I have crossed the limit of 10 lakh in my first year. But if i have to pay the service tax on full amount, it would be impossible for me to paym For example, if i get a income worth 20 lakh, i would be spending 15 lakh for import of services. So that means, i have to pay 2.5 lakh on servixe tax and .5 lakh income tax. It would amount to more than half of my actual earnings going in the way of tax..
Is there any provision for getting a deduction in a case like this?
I have crossed the limit of 10 lakh in my first year. But if i have to pay the service tax on full amount, it would be impossible for me to paym For example, if i get a income worth 20 lakh, i would be spending 15 lakh for import of services. So that means, i have to pay 2.5 lakh on servixe tax and .5 lakh income tax. It would amount to more than half of my actual earnings going in the way of tax..
Is there any provision for getting a deduction in a case like this?
24 July 2025
I understand your concern—paying service tax on imported services can feel like a heavy burden, especially when your major cost is actually the payment to foreign experts.
Here’s a breakdown and some clarifications that might help:
1. Service Tax on Import of Services (Under Reverse Charge Mechanism)
Yes, service tax is applicable on imported services under reverse charge.
If your import of services exceeds Rs. 10 lakh in a financial year, you need to pay service tax on the entire value of imported services from the next financial year onwards.
For the first year, you pay service tax only on the amount exceeding Rs. 10 lakh.
2. Your Concern: Heavy Tax Burden
Example: Income ₹20 lakh, Cost of import ₹15 lakh.
You pay service tax (say at 15%) on ₹15 lakh = ₹2.25 lakh.
You also pay income tax on your profit (₹5 lakh) at applicable rates.
This might seem like double taxation but remember:
Service tax is a consumption tax on imported services.
Income tax is on your net income after deducting expenses (including the import cost and service tax paid).
3. Is there any deduction or relief?
Service tax paid on imported services is eligible for Cenvat Credit (input tax credit) if you are registered under service tax and providing taxable services.
You can offset this service tax paid as input credit against your output service tax liability, reducing your net service tax payable.
However, if your service is exempt or if you are not registered for service tax, you cannot avail credit.
Regarding income tax, you can deduct the entire cost of imported services (including service tax paid under reverse charge) as business expenses, reducing your taxable income.
4. What if you are not registered or exempt?
If you are below the service tax threshold for registration (other than import), you still have to pay service tax under reverse charge on imported services.
But without registration, you cannot claim input credit, so service tax becomes a real cost.
This is a known challenge for service providers heavily dependent on imported services.
5. Possible Options:
Register for service tax voluntarily to avail credit.
Structure contracts or business model to optimize tax incidence.
Consult a tax expert for tailored advice considering your business model and future growth.
Summary:
Tax Payable on Can be deducted/credited?
Service Tax (Import) Value of imported service (reverse charge) Yes, if registered, can claim credit against output tax
Income Tax Profit after expenses (including service tax paid) Yes, entire cost including service tax paid can be deducted
Here’s a breakdown and some clarifications that might help:
1. Service Tax on Import of Services (Under Reverse Charge Mechanism)
Yes, service tax is applicable on imported services under reverse charge.
If your import of services exceeds Rs. 10 lakh in a financial year, you need to pay service tax on the entire value of imported services from the next financial year onwards.
For the first year, you pay service tax only on the amount exceeding Rs. 10 lakh.
2. Your Concern: Heavy Tax Burden
Example: Income ₹20 lakh, Cost of import ₹15 lakh.
You pay service tax (say at 15%) on ₹15 lakh = ₹2.25 lakh.
You also pay income tax on your profit (₹5 lakh) at applicable rates.
This might seem like double taxation but remember:
Service tax is a consumption tax on imported services.
Income tax is on your net income after deducting expenses (including the import cost and service tax paid).
3. Is there any deduction or relief?
Service tax paid on imported services is eligible for Cenvat Credit (input tax credit) if you are registered under service tax and providing taxable services.
You can offset this service tax paid as input credit against your output service tax liability, reducing your net service tax payable.
However, if your service is exempt or if you are not registered for service tax, you cannot avail credit.
Regarding income tax, you can deduct the entire cost of imported services (including service tax paid under reverse charge) as business expenses, reducing your taxable income.
4. What if you are not registered or exempt?
If you are below the service tax threshold for registration (other than import), you still have to pay service tax under reverse charge on imported services.
But without registration, you cannot claim input credit, so service tax becomes a real cost.
This is a known challenge for service providers heavily dependent on imported services.
5. Possible Options:
Register for service tax voluntarily to avail credit.
Structure contracts or business model to optimize tax incidence.
Consult a tax expert for tailored advice considering your business model and future growth.
Summary:
Tax Payable on Can be deducted/credited?
Service Tax (Import) Value of imported service (reverse charge) Yes, if registered, can claim credit against output tax
Income Tax Profit after expenses (including service tax paid) Yes, entire cost including service tax paid can be deducted
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