Tax on Internet service

Hi, we will be providing Internet cloud based service (software and storage as a service) to our customer. 
The customer data will be stored on a server in US (we will pay a monthly fee to US based cloud data provider) and we will charge the customer a monthly or annual fee for the data storage and software. 

Few questions I would appreciate help with. 

1. We plan to use a corporate credit card to pay the US vendor and receive payments from customers in India through credit card as well. Is this ok? 
2. What is the Service Tax (if any) I need to collect from customer for the software as a service? 
3. Do I need to pay any India taxes for the US vendor data storage? (since this is an international sales, the US vendor does not collect any US sales tax)
Asked 2 years ago in Service Tax from Bangalore, Karnataka
1)  No this has got legal issues . Firstly you are availing storage services  from U S Vendor and such services are consumed in India, this may attract 14%  service tax on fee paid as rent for storage services. Secodndly you have to obtain IE code from DGFT, and you are importing storage services, kindly take permission
RBI for releasing payments in foreign exchange. Kindly check Foreign Trade Policy, to clear position on import duties. There is no problem as far as receiving payments by credit card  from your customers in India.

2)  If you are selling software as a packaged product, such as Tally, EX or others, then this will attract VAT under concerned state VAT. If you are offering software services such development, or customisation then you will have to collect 14% from your customer.

3) You will have to get the agreement between you and US Vendor, to check whether the transaction is hit by provisions of Tax deduction at Source under Income Tax Act, which is very harsh provision.
Vijay N. Kale
CA, Hyderabad
248 Answers
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