Taxability of service tax

[Asked by Guest]

An Indian Company is taking services of a US Company for digitisation of Data ( digitisation means converting hard copies into soft copies in a proper format). a.Is these services are taxable under service tax ?If yes, under which service. b.Is service tax is payble on import of these services. c.Is TDS under Income Tax is deductible on these services. If yes, under which clause of DTAA.

From the nature of service, it is felt that the service would be covered under the category of 'Business support service'. In such a case, it will be taxable on the basis of usage and the India company will be subject to service tax under the reverse charge method. However, for the purpose of TDS under IT Act, I am of the view since the service is fully rendered outside the country, it may not be subject to any withholding tax obligations.

[Surender Gupta]

A detailed study is required to be made to ascertain the nature of service. It may be taxable under "business support service" or any other relevant category. Further, the manner and method of services being provided by the US company to Indian company would determine the tax ability of service under Import of Services Rules. Regarding TDS provisions you need to refer to provisions of Section 195 read with DTAA provisions with reference to technical consultancy or engineering services.

[Anuj Gupta]

TDS is deductible u/s 195 under the provisions of Income Tax Act, however may not be taxable in terms of "make available"clause of India-USA DTAA

AI Summary

Business support service classification may attract service tax under reverse charge and raise withholding tax issues under TDS rules
Overseas data digitisation services are likely classifiable as Business Support Service and, if used in India, may be taxable under the reverse charge mechanism; importability and chargeability are governed by the Import of Services Rules and require factual analysis. A domestic payer may need to deduct tax at source under domestic law, subject to the India-USA DTAA and the "make available" test which can affect whether the service is taxable in India.