Service Tax on Export of the Services in India

Service tax on Export of the Services is a confusion topic for the Startups and Entrepreneurs in India which are registered under the service tax but they do’nt know that Service tax applicability on the Export of the Services in India.

Service Tax on Export of the Services

Applicability on Service tax on Export of the Services

The basic principle of taxation says that goods and services should be exported but taxes are not to be exported. Another principle is that service tax can be levied only if service is provided or received or consumed in India.

Meaning of ‘Export of service’ has been defined in Export of Service Rules, 2005. The new rules are effective from 15-03-2005. The rules make it clear that exemption from services/rebate of service tax and excise duty paid is admissible only if there is ‘Export Of Service’ as defined in these rules. Mere receipt of payment in free foreign exchange will not be sufficient to treat the services as ‘Export Services’

Definition of the Export of the Service

As per rule 6A of service tax rule regarding the Service tax on Export of the Services , Provision of services provided or agree to be provided shall be deemed to be export of services when
1. The provider of services is located in taxable territory
2. The receiver of services is located outside the taxable territory.
3. The service is not specified in rule 66D of the act.
4. The place of provision of service is outside India.
5. The payment is received in convertible foreign exchange
6. The provider and recipient of service are not merely establishments of a distinct person in accordance with rule 66B of the act.

Example on Applicability of Service Tax on Export of Services.

Mr. Bhanu provides tax consultancy and advice service to Mr. Joey at the US. In this case, the provider of services is in taxable territory and service receiver is outside taxable territory. Service is render outside India. So there is the export of service and it is out of service tax levy.

Service Tax on Export of the Services is Exempt or Not ?

According to the section 66B of the Finance Act, 2012, service tax shall be levied on all services except those specified in the Negative List. The rule further says that service provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

The rule says that the service should be provided in the taxable territory. Therefore, when the service provider is located in the taxable territory, that is India (condition 1), and when the service provider is located outside India in non-taxable territory, and with the other conditions as above, if a service is considered as Export of Service then such service is exempted from service tax.

Options to avail exemption of service tax on export of services:

Service provider can avail exemption by choosing one option from below:

  1. Export services without payment of excise duty/service tax and utilize cenvat credit to pay excise duty or service tax on other taxable manufactured goods or services provided.
  2. Export services without payment of service tax/excise duty and claim refund of service tax and excise duty paid on inputs as per rule 5 and notification no. 27/2012- CE (NT) dated 20/6/12.
  3. Export without payment of service tax and claim rebate of service tax paid on input services and excise duty paid on inputs. (Notification no. 39/2012 service tax dated 29/6/2012.
  4. Full exemption in respect of GTA services and services of foreign commission agent utilized for export of goods where service receiver is liable to pay service tax under reverse charge mechanism. (Notification no. 31/2012-ST ,42/2012-ST).
  5. Exemption to service provider when services are provided to VKGUY, FPS and FMS.

Service Tax on Export of Software Services

There is no need to pay the Service Tax on the services or not require Online Service Tax Registration in India which are rendered outside India except Online information and database access or retrieval services which will be taxed in India.  If you have paid any Excise Duty or Service tax for rendering the Export Services that you can also claim refund. Detailed information is given below.

What are “Online information and database access or retrieval services”?
“Online information and database access or retrieval services” are services in relation to online information and database access or retrieval or both, in electronic form through computer network, in any manner. Thus, these services are essentially delivered over the internet or an electronic network which relies on the internet or similar network for their provision. The other important feature of these services is that they are completely automated, and require minimal human intervention.”
Examples of such services are:-
i) Online information generated automatically by software from specific data input by the customer, such as web-based services providing trade statistics, legal and financial data, matrimonial services, social networking sites.
ii) Digitized content of books and other electronic publications, subscription of online newspapers and journals, online news, flight information and weather reports.
iii) Web-based services providing access or download of digital content.

Hope this Article is helpful for you on Service tax on Export of the Services Applicability. if you have any question just post in the comments.