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Hosting provider starts charging Indian customers service tax; others to follow?

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US-based hosting provider DigitalOcean has become one of the first companies to start implementing the service tax that was introduced by the government for online games, movies, music and software last month (Hat Tip: Twitter user Raju PP).

We have written to AWS, Netflix and Steam asking about their plans to implement the service tax and if the cost will be passed down to the customer. We will update the story when we hear back.

DigitalOcean on its part, has started adding the 15% tax to non-business consumer bills from this month, but is offsetting the cost for the first month by crediting the same amount to users. Business entities with a service tax ID can enter it into the service tax ID form on the billing page, which exempts them from paying the service tax. The storage hosting provider mentions that it will pay the tax collected from Indian customers to the relevant tax authorities.

India’s new service tax law was implemented from the 1st of December, charging the tax based on the location of the service receiver, as opposed to based on the location of the service provider. As such, companies based outside India now have to pay a 15% service tax for each transaction with a customer based in India, for advertising on the internet, providing cloud services, provisioning books, movies, music, software etc., providing data or information, online gaming etc.

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Note that as of now, not many services are imposing the tax, including the likes of Steam, Namecheap, AWS etc. We expect the more popular services will eventually pass on the extra burden on to customers, while smaller businesses and companies based outside India that sell to customers in India, are unlikely to even know that such a tax has to be paid. It will be interesting to see how the Government will go about enforcing the tax mandate on the numerous foreign entities that sell intangible goods in the country.

Image source: Flickr user Phillip Ingham under CC BY-ND 2.0

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