FAQ on Service Tax on receipt of services from outside India

FAQ on Service Tax on receipt of services from outside India Import of services

1. What is the statutory provision regarding taxing of services provided from outside India & received in India?

Section 66A of the Finance Act, 1994, inserted with effect from 18.4.2006, provides that where any taxable service is provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and is received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India.

 2. Is the recipient of service liable to pay tax for the taxable service is provided from outside India? 

The recipient of service shall be liable to pay tax if the provider of service do not have any established business or a fixed establishment in India. However, a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country (including India). 

3. Where provider of the service has his business establishments in more than one country, which country should be treated as the country from which service is provided?

If the provider of the service (from outside India) has his business establishments in more than one country, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. (Ref.: Section 66A (2) of the Finance Act,1 994.).

 4. What will be usual place of residence‘ of a body corporate? 

Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted. (Ref.: Explanation 2 to sub-section 2 of Section 66A of the Finance Act, 1994.)

 5. What constitutes import of services?

The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 specifies 3 categories of cross border transaction of services and conditions that will be construed as import of services, namely, - 

i.specified services which are provided in relation to immovable properties situated in India – [See list of services in Appendix-4]

(Ref. Rule 3(i) of The Taxation of Services Rules 2006).

ii.         specified services which are provided partly in India – [ See list of services in Appendix -4]

(Ref. Rule 3(ii) of The Taxation of Services Rules 2006). 

iii. the remaining taxable services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located in India. [ See list of services in Appendix -4]

(Ref. Rule 3(iii) of The Taxation of Services Rules 2006). 

Thus, each transaction has to be seen individually to ascertain if it constitutes import of services, fulfilling the requisite parameters