Service tax on freelancer?

the provision of any service provided or agreed to be provided shall be treated as export of service when,-

(a)  the provider of service is located in the taxable territory ,

(b) the recipient of service is located outside India,

(c) the service is not a service specified in the section 66D of the Act,

(d)  the place of provision of the service is outside India,

(e) the payment for such service has been received by the provider of service in convertible foreign exchange, and

(f) the provider of service and  recipient of service  are not merely establishments of a distinct person in accordance with  item (b) of Explanation 2 of clause (44) of section 65B of the Act

(2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.”

i dont think you satisfy the "d" condition .

since your services will fall under rule 9 of place of provison rules in which case tha pop will be location of service provider that is India.

and so your service may be taxable.

however if you satisfy all of the condition mentioned above than you are not liable to service tax.(make sure your POP is outside India ).

 

 

Thank you for your valuable inputs. Now, my client had earned receipts Rs. 400000 in the FY 2012-13. While in FY 2013-14, he earned receipts of Rs. 10,22,000. However, he did not take service tax registration, nor did he collect any service tax. He wants to know his income tax liability and file return for FY 2013-14. My query is that what will be the tax implication now, since he crossed the 10 Lacs limit and failed to get himself registered under the Service tax act??? and what is the remedy?

Thanks

THE ASSESSEE (SERVICE PROVIDER) IS REQUIERD TO REGISTER WHEN ITS VALUE OF TAXABLE SREVICE EXCEEDS RS 900000/- (IN A FINANCIAL YEAR ) WITHIN 30 DAYS FROM SUCH DATE.

IF THE ASSESSEE FAILS TO TAKE REGISTRATION WITHIN THE SPECIFIED PERIOD THAN HE IS LIABLE FOR PENALTY OF UPTO RS 10000/- U/S 77(A).

APART FROM THIS INTEREST AND OTHER CHARGES WILL EXIST ON LATE PAYMENT OF SERVICE TAX.

REGARDS,

This is regarding your Service Tax liability.

Firstly get your client registered, paying the penalty for non-registration.

Secondly, when did you exceeded 10lakhs exemption limit? considering this you hav to pay your service tax and interest and penalty (Quarterly Payments for Individuals) and your service tax return along with penalty (incase you received amount between April-September, whose retern filing due date is 25th October) and if you have received after september then you can file your return normally without penalty (due date 25th April).

And since your client is Service Provider he is eligible for basic exemption of 10 lakhs, hence tax liability will arise only on amount above 10 lakhs, which will be calculated as price cum tax amount (i.e inclusive of service tax amount, since your client has not charged service tax seperately).

Regarding Income Tax Liability:

Tax liability will be calculated under Income from Business/Profession.

 

Regards.

I am still a little confused about my first query Mr. Jainendra. My client provides software consultation services as a freelancer to US clients. Points a,b,c,e,f are satisfied, but according to you the client gets covered underpoint d, I.e. place of provision of service. However, I read the following on some other site and I guess that based on this my client can be excluded from service tax purview:

Rule 3 of ‘Place of Provision of Services Rules, 2012’ reads:

“The place of provision of a service shall be the location of the recipient of service:

Provided that in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.”

Reading Section 65B and Rule 3 together, it becomes evident that Service Tax is not leviable on export of software because the recipient of service is located in non-taxable territory.

Please guide as I am still confused.

 

Thanks

Hi, Even i checked regarding this, your client will not be liable for service tax. As per Rule 9 : Place of provision of specified services.- The place of provision of following services shall be the location of the service provider:- (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) Online information and database access or retrieval services; (c) Intermediary services; (d) Service consisting of hiring of means of transport, upto a period of one month. And your client service does not fall in any of above categories hence we have to resort Rule 3 i.e General Provision. Hence the service provision is outside taxable territory and will not be taxable.

Place of provision of specified services.- The place of provision of following services shall be the location of the service provider:-

 

(a)  Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders;

(b)  Online information and database access or retrieval services;

(c)   Intermediary services;

(d)  Service consisting of hiring of means of transport, upto a period of one month.

firstly, many a times a freelancer while for expansion of his services uses the work of another freelancer whereby assesse merely acts an intermediary thereby covering himself under clause " c- intermediary" of specified services under rule 9.

secondly , genrally a freelancer has to provide whole of his work online whereby he may get covereed under clause "(b)  Online information and database access or retrieval services."

however this is matter of interpretation of law and analysis and as per my analysis i consider it to be taxable. if you are very well sure that this should not be covered under any of the above sub clauses than rule 3 will be invoked and in that case your service will be exempted.

please note above views are only recomendatary and views may change.

 

regards,

 

Friends

Agreed it is an export of service and hence outside the scope of output service tax levy. But will the exporter be liable to be registered with the Dept. as the export turnover exceeds 9 lakhs. There are cells/columns in ST3 where a service provider has to disclose the export service turnover.

Regards,

The annual threshold limit of service tax exemption for small service providers has been Rs.10 lakh, provided that the aggregate value of taxable services rendered by such provider of taxable service from one or more premises, does not exceed Rs.10 lakh in the preceding financial year. . Here “aggregate value” means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification. . “exempt” – services appearing in the Negative List are exempt services.. “leviable” - no service tax is leviable in case recipient of service is located in non-taxable territory. . Hence,Aggregate value of taxable services’ may be calculated by adding all the invoices raised till date minus the invoices raised for Software Services which has been supplied to customer located in non-taxable territory. . This view is expressed as per my understanding to the subject. Kindly do confirm the same.

Agree with mr. Jainendra jain... He explained so well .....liked it .

Dear Nupur,

In my view, the Software Consultancy Service provided by your client to person outside india prima facie seems to be 'Online Informatation and database access or retrieval service' as covered in Rule 9 of POP Rules, 2012. As discussed above, if the service is covered by Rule 9 ibid, then the place of provision of service is the location of service provider and leviable to tax u/s 66B. You may take service tax registration without paying any penalty and file ST-3 return for 2nd Half of FY 2013-14. If the officer issue SCN levying penalty u/s 77, then you shall pay penalty as specified in SCN upto maximum of Rs. 10000. You pay tax on receipt basis instead of accrual basis on 19580 @ 12.36% i.e. 2420 + Interest @ 15% p.a.

Kindly also note that as per Rule 2(b) of Service Tax (Registration of Speicial Category of Persons) Rules, 2005, the limit of Rs. 9 Lacs for taking registration is for payment received during the FY and not invoice raised during the FY. Hope this would help.

From all your valuable inputs, I have come to the conclusion that in order to claim exemption from service tax under export of service rules, the following conditions must be fulfilled:

(a)  the provider of service is located in the taxable territory

(b) the recipient of service is located outside India

(c) the service is not a service specified in the section 66D of the Act

(d)  the place of provision of the service is outside India

(e) the payment for such service has been received by the provider of service in convertible foreign exchange and

(f) the provider of service and  recipient of service  are not merely establishments of a distinct person in accordance with  item (b) of Explanation 2 of clause (44) of section 65B of the Act  

Now my client (providing services from India- taxable territory) provides services entirely to US based clients (service recipients residing in non taxable territory). The services provided are not mentioned in section 66D of the Act. There is ambiguity in respect of point (d) i.e. place of provision of service. As stated by Mr. Jainendra & Mr. Ronak --Rule 9 : The place of provision of following services shall be the location of the service provider:- (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) Online information and database access or retrieval services; (c) Intermediary services; (d) Service consisting of hiring of means of transport, upto a period of one month.

Now there is a scope that my client gets covered under point (b) of rule 9 as mentioned above and hence becomes liable to pay service tax. However, I researched extensively and came across a discussion wherein I found this apt explanation ---->

Para (l) of Section 2, titled Definitions, of Place of Provision Rules 2012 defines the phrase “online information and database access or retrieval services” as “providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network;”

This definition makes reference to ‘data and information’ and not to Information Technology or Software. Therefore it is important to understand the meaning of the two nouns ‘data’ and ‘information’. As these words have not been defined in The Act, we shall go by the dictionary meaning. I have referred to the Microsoft Computer dictionary Fifth Edition available from:
www. assaabloyamericasuniversity.com/Other/AssaAbloyAmericasUniv/Library/Reference%20Docs/Computer%20Dictionary.pdf

data n. Plural of the Latin datum, meaning an item of information. In practice, data is often used for the singular as well as the plural form of the noun. See also datum. Compare information.

information n. The meaning of data as it is intended to be interpreted by people. Data consists of facts, which become information when they are seen in context and convey meaning to people. Computers process data without any understanding of what the data represents.

In simple words, ‘data’ is the Fact and what emerges after processing ‘data’ is ‘information’. Possible examples are i) website of stock exchange provides data on current stock prices ii) website of an Education Board provides a student’s mark sheet iii) website of Indian Railway provides information on reservation status or many other commercial databases which can be accessed only after paying a subscripttion.

Processing is done with the aid of software (and computers). A freelancer’s activity is concerned with this software tool used in processing while data and information falls in the domain of owner of the website.

Conclusion: Providing ‘data and information’ is outside the reach of an average freelancer. If an Indian business man earns revenue by providing ‘data and information’, he can not shield himself from the rigors of Service Tax by saying that all the end user of his service are located in non-taxable territory.

Now my client says this about the nature of services provided by him---->

"My work on a daily basis involves providing my expertise as a software 
developer and system administrator to clients to build new software, 
maintain existing software, and to deploy and debug applications on servers."

After linking all htis info, I can conclude that my client (software developer/ consultant/ freelancer) is covered under export of service rules and hence exempted from service tax. Although I may like to add that this is what I could infer as per my understanding. I am still open to other's views, as there is a lot of ambiguity in service tax.

Now my only question is that although my client is exempted from service tax by means of getting covered under export of service rules, should he get himself registered under the act or not?? Since ideally, exemption from something can be claimed only if you are registred under that act. Or can the exemption be claimed even from getting registered for service tax?? He crossed 10Lacs limit in the FY 2013-14.

Please help.

Thanks in advance