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Is payments received via paypal exempt from service tax?

Gurinder Singh (Sole Proprietor) (32 Points)

14 October 2011

As from now on PayPal India hase raised limits of per Transaction to 3000 USD for export related payments, we already added a PAN, a Local Bank Account and a Purpose Code 'Software Consulting'

Will service tax be exempt on Payment received via PayPal? As i have an understanding that service tax will be exempt only if we receive payments in Foriegn Exchange (like wire transfers) and PayPal send payments as NEFT to our bank accounts.

Will service tax department will accept this payment as "export of service"?

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6 Replies

Milan Somani (CA) (1456 Points)
Replied 14 October 2011

Yes, its exempt as the payment for service is recd. in $ in paypal a/c and than its remitted to your bank accounts.

1 Like

CA Devender Chauhan (Group Financial Accountant) (1526 Points)
Replied 25 November 2011

BUT HOW CAN WE SHOW THE ST DEPT THAT PAYMENT WAS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AS IN THIS CASE WE DON'T HAVE ANY FIRC ETC.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 25 November 2011

you have to submit the bill copy issued to foreign buyer to bank and ask for Foreign Exchange Realization Certificate, bank will issue the same mentioning the bill datails and name of payee, this will suffice the purpose

CA Devender Chauhan (Group Financial Accountant) (1526 Points)
Replied 26 November 2011

So u mean to say that the bank will issue the firc even the forex goes to paypal account. Also is there any time limit for issuing firc by bank.

CA Unnikrishnan Nair N (Chartered Accountant) (2083 Points)
Replied 26 November 2011

Receipt of FE thrugh paypal is contravertial. Both Income tax and Service tax department disputed it saying that it is not receipt in FE because the banker cannot issue FE realisation certificate. This is bcause , banker receives the money from paypal in Rupee. Though it is disputed by departments, I feel that you have good case to argue that paypal is acting as your agent to receive payment in FE. But this is possible only If payapl can issue a FE realistion certificate. It is understood that pay pal is reluctant to issue such certificate.

1 Like

saurabh jain (Audit Specialist) (271 Points)
Replied 05 December 2012

I think that it will never be exempt from servie tax as one of the director got the following reply from PAYPAL

" I understand your concern. I would like to inform you that PayPal cannot issue FIRCs or coordinate how FIRCs are issued. The FIRCs are actually issued by the authorized dealer bank . PayPal’s blog post merely mentioned the FIRCs as part of the advantages of using our revised process.

Customers with questions about FIRCs should be asked to contact their bank to initiate a request for FIRC."

The understanding tha i got from the above is that after the recent changes made by RBI and Paypal, some mechanism has been made to get FIRC.

However, i want to know if anybody got success in getting FIRC for their paypal payments? Also, what does dealer bank mean in this case? Is it the bank through which payment gets routed to my icici bank account?

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