Service Tax applicability for international customer
I own an IT firm, which is registered as private limited. I have an international customer, to whom I am providing man power services. the team located in Chennai and work for the client's project. They are under our payroll. For this my accountant suggested to collect min of 10% of margin, of which 3% will go for Income Tax and 7% profit. He said there won't be any service tax applicable for international customer. However, the client is Indian residing in Singapore, registered his company in Singapore itself. He make the payment in Indian currency from his Indian account. Is my approach of charging 10% above the actual salaries paid to the employees serves the IT law? or do I need to collect the 14.5% service tax too? (I have registered Service Tax last month as my turnover cross 10L)
Asked 2 years ago in Service Tax from Chennai, Tamil Nadu
Levy of service tax would depend upon the currency in which you are receiving funds. If the fee is received in foreign currency then it would amount to export of services and hence not chargeable to service tax.
In case you are going to receive in in indian currency, then it would be difficult to claim exemption and you would have to collect tax.
You will also have to register yourself with DGFT for export of services. Get an IE Code, declare to your banker and then receive funds from abroad.
Export of Services is not liable for Service tax if the Place of provision of service is outside India and the payment of Service should be in convertible foreign exchange, which means you should receive the proceeds in a foreign currency which can be then converted into Local Currency.
In your case, the service is provided in India as the team is located in Chennai so the service is provided in the territorial borders of India.
Plus the proceeds are received in Indian Currency instead of convertible foreign exchange.
So in your case, Service Tax is applicable and you need to collect 14.5% Service Tax from your client.
Trust this clarifies your query.
Feel free for any further clarification.
CA Rohit R Sharma
BCOM, CA, LLB-GEN, CERT FAFP.
Thanks for your inputs. I have got an update from client. He shared the receipt for the transaction. It says: Outward Telegraphic Transfer from DBS bank, Singapore account - Principal Amount xxx INR equivalent xxx SGD to ICICI Bank, India. So, does this come under foreign services? do I need to collect ServiceTax?
Asked 2 years ago
As I said you must meet both the conditions and in your case the Service is being provided in India. Hence Service Tax is applicable.