15% service tax on buying music & e-books from foreign portals w.e.f 1st December 2016

Beginning December 1, 2016, downloading and buying music or e-books from an overseas service provider will attract 15% service tax.

Central Board of Excise and customs (CBEC) through separate but interlinked notifications dated November 9 has amended Place of Provision of Service Rules for ‘Online information and database access or retrieval services’. Definition of “online information and database access retrieval services’ has also been changed to “delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology“.

This definition is very extensive and includes services such as internet advertising, providing cloud services, e-books, movies, music, software and other intangibles via telecommunication networks or internet, providing data or information in electronic format via a computer network, online supply of digital content, digital data storage and online gaming.

Impact

Prior to this amendment, the individual and governments were not subject to any service tax however they are now taxable and the overseas service provider also needs to register in India to pay service tax.

As a result of this change, downloading & buying music and e-books from overseas sites or buying storage space on cloud from an overseas service provider will be liable to 15% service tax.

If you happen to be downloading and buying music or e-books from a service provider in India then your purchase is already subject to service tax however the overseas service provider purchases were not subject to any service tax and the tax was paid in their home country only but now every transaction will attract 15% service tax. Considering from an industry perspective, this will play a levelling effect on the domestic and overseas suppliers of music, e-books and other related stuff.