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Service tax liability for software consultants

11 December 2012

I work for a US client where I support his software from India. My employer (there is no agreement betwen him and me) is the prime vendor for this Client in US. I am paid per hour. Every month, I send the time sheet to my employer in US and he then send the money to a company in India with which I have a consultant agreement and he converts the USD to INR and pays me on the prepailing exchange rate.

Please advice if I need to pay the Service Tax since the receiver of service is in US and I am in India.

Any guidance is greatly appreciated.

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6 Replies

Tejas Jain (Chartered Accountant) (314 Points)
Replied 11 December 2012

Service Tax Liability arises when the gross receipts Exceeds Rs. 10 Lac

CA Suri Kota (Assistant Manager @ EY) (955 Points)
Replied 12 December 2012

Saranya,

on papers, as the indian company is receiving the money from US, ST hazzles won't strictly hit u.

But if your annual billing i.e. if the amount you receive from such indian company exceeds 10 lacs in a year, then certainly you need to get register under Service Tax.

Also you need to charge the Service tax on such Indian company and you need to comply with the rules relating to payment/returns accordingly.

Please do create the space for applicable taxes in your agreement for services with Indian company.

Trust this clarifies.

1 Like

Saranya Nerella (Others) (26 Points)
Replied 12 December 2012

Hi Suri,

Thank you for your response. I have an other question from your response. Since you said that ST hazzle won't hime me and then again if the salary is above 10lakhs I have to comply, I am confused. Please explain this.

Also, if I receive the said remuneration directly from my US client in USD to my NRO account in India, will ST and Income Tax still apply. Please advice.

CA Suri Kota (Assistant Manager @ EY) (955 Points)
Replied 12 December 2012

Saranya,

As you said in your query , once you have consultant agreement, it won't be termed as salary legally. It will be consultancy fee thereby attracting the Service Tax. Hence the amount you receive from indian company can not be your salary but merely consultancy fee.

Any funds deposited by a NRI in a NRO account is exempted but here you are not an NRI as your are serving from India. In case, when you receive directly from US Company, it means that you are providing Export Services, wherein Service Tax is exempted but you need to get registered under Service Tax and file the returns showing such exempted income. Only relief is you dont need to charge service tax extra on US Comp.

As far as Income tax is considered, it is taxable in India at the slab rates applicable like 10% / 20%/ 30%.

1 Like

Saranya Nerella (Others) (26 Points)
Replied 24 December 2012

Hi Suri,

Thank you very much for your prompt response. However, I need your expert opinion on one more query I have.

The salary statement (consultancy fee) I receive from the Indian company has the Client name as my US client. In my scenario using place of provision rule will the service recipient not be my client in US? If so, will it not be export of service and hence exempted from service tax? (The place of provision rule states that generally the place of provision is the place of receiver.) Please advice.

CA Suri Kota (Assistant Manager @ EY) (955 Points)
Replied 24 December 2012

Saranya,

Eventhough you serve the Client is US or some other person, Legally when you have the existing agreement with an Indian Company, then You are deemed to be providing sevrvices to such Indian Company but not the clients in US. i.e the receipent of services is located in India but not US.

Once you cross the fee INR 9 lacs from such indian company, then you are supposed to register under Service Tax.

You can get back to me again on this.

Suri.