Tax Structure Base in Cloud Businees

[Vidhi Agroyee]

Dear Sir,

We are MS LAR partner in the India in which we do purchase from Microsoft and resale to our customer.

As earlier our business was License based, In which MS directly transfer license to the customer which was treated as Shipping and License address of the customer for Tax structure(VAT/CST) purpose.

But now there is change in the business, In which MS provide cloud business to the customer, and customer transfer this to their different subsidiary in different location according to the requirement.

So my concern is what will be tax structure base in this.

Regards

[Madhukar N Hiregange]

As I understand, the customer now would access the server and therefore it may now not be liable to VAT/ CST but to service tax on reverse charge basis.

[YAGAY andSUN]

Dear Vidhi Agroyee,

Well, we are discussing here "SAAS" platform of the Cloud. There is no clarity on this aspect in the VAT laws as yet.  But it may come under "Right to Use" and DVAT Department may ask you to pay the VAT as softwares are  very much included in their Tax Schedules under DVAT Act, 2003.

Further, you may also get the clarification under Section 84 Determination of specific questions of the DVAT Act, 2003 on payment of nominal fee to the tax authorities.

Regards,

Team YAGAY & SUN

(Management & Indirect Tax Consultants)

AI Summary

Cloud service taxation: classify SaaS as VAT 'right to use' or service tax on reverse charge to determine applicable indirect tax. The core issue is whether cloud/SaaS delivered by a licensor and accessed by customers (and their subsidiaries) is a service taxable under service tax on reverse charge or a taxable software 'right to use' supply under VAT; taxpayers may seek an authoritative classification via the tax department's determination procedure to resolve the applicable indirect tax head.