Tax Compliance for Hosting Services in India

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There are tax related ambiguities for Hosting companies and for end-customers availing of services from hosting companies. I am talking about India.

There are few unique buyer-seller scenarios having different tax implications as applicable to an Indian Hosting Company like Sanver E-Solutions:

*ISP : Internet Service Provider : Hosting / Datacenter companies or Internet companies like Google, Symantec etc.

  1. Sanver E-Solutions or any other Indian company raises the invoice to end customer
    • Scene 1: Foreign ISP (like Rackspace) + Indian company as end-customer
    • Scene 2: Foreign ISP (like Rackspace) + Foreign company as end-customer
    • Scene 3: Indian ISP (like Net4) + Indian company as end-customer
    • Scene 4: Indian ISP (like Net4) + foreign company as end-customer
  2. Indian company pays direct to ISP. Here there is no service provider like Sanver E-Solutions.
    • Scene 5: There is another scenario of an Indian Company as end-user (Shaadi.com) buying from a Foreign ISP (Rackspace).
    • Scene 6: Indian end-user Company  (like Shaadi.com) buys from an Indian ISP (Like Net4)

tax-for-hosting-companiesThe article is not supposed to be a legal document, so do consult your CA before acting on suggestions given here.

  1. Service tax & TDS applies to Domain Name, Hosting & Email Services for all sales done to an Indian end-customer
  2. An Indian company like Shaadi.com when it pays to a foreign ISP like Rackspace.com for Managed Dedicated Server (or any other managed services), is not supposed to deduct TDS from its payment. {readers: your comments are welcome on this point}
  3. An Indian company like Mahindra & Mahindra, when it pays to an Indian ISP like Net4.in for Managed Dedicated Server (or any other managed services), is supposed to deduct TDS from its payment.
  4. When an Indian Hosting company (like Sanver E-Solutions) buys hosting services from a foreign company like Google.com, it is supposed to pay Service tax to Government. Offset it against the Service Tax you receive from the end-customer.
  5. When an Indian Hosting company (like Sanver E-Solutions) buys hosting services from a foreign company like Rackspace.com, and sells it to a end-customer in USA, no TDS is to be deducted and no Service tax is to be charged. {readers: your comments are welcome on this point}
  6. When an Indian Hosting company (like Sanver E-Solutions) buys hosting services from an Indian ISP like Net4.in, the Indian ISP will charge Service tax. Offset it against the Service Tax you receive from the end-customer.
  7. Applicability of taxes when Google Apps is sold to Indian end-user customers: Google Apps licences comes under “Contractual Subscription Services” and hence it attracts a TDS of 2% only. Please refer to http://www.charteredclub.com/section-194c/ for details

governance-complianceRegulatory compliance is a continuous process for any business. Non-compliance with local / regional / national laws & regulations often has severe legal & business costs.

Please feel free to share your inputs on the topic.

 

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