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Downloads for personal use to attract service tax

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Budget proposes 10% tax.

Dent in your pocket

In case of downloads made available by foreign suppliers, under the ‘reverse charge principle', the person would need to pay the service tax at 10.3%.

Transfer of right to use a packaged software is liable to only service tax and would not attract central excise and customs levies.

K. Giriprakash

Bangalore, March 1

Next time you download a paid software application including games from a foreign supplier/Web site into your computer or to your mobile phone for individual use, you may have to pay a service tax of 10 per cent to the Government.

Till now, service tax was payable on electronic download of software only if they were intended for furtherance of business or commerce by the person downloading. The amendment in this Budget seeks to eliminate this pre-requisite.

What it means is that every download of software including gaming software, application software, mobile software etc for personal use would also be liable to service tax. This assumes more importance specifically when the supplier of software is overseas.

Mr N.R. Badrinath, a partner with a consulting firm Accretive Business Consulting, told Business Line that in case of downloads made available by foreign suppliers, under the ‘reverse charge principle' the person downloading such software in India would need to pay the service tax at 10.3 per cent.

This means that even an individual downloading software for personal use would need to pay the service tax, seek registration under the service tax provisions and also file the statutory returns thereafter.

Non-compliance with the provisions could trigger interest and penalty. “This amendment brought in with respect to information technology software services will create a lot of hardships,” Mr Badrinath said.

Further, the Budget replaces the Customs/excise duty levy of 8.24 per cent on software imported for commercial exploitation with a service tax of 10.3 per cent.

Canned software

The only welcome news is that the Budget proposal does well to reduce the classification issues on packaged or canned softwares (off-the-shelf software). Canned software has been a matter of much debate and deliberation as far as the applicability of central excise, customs and service tax is concerned, an analyst with another consultancy firm said.

The Budget now clarifies that transfer of right to use a canned software is liable to only service tax and would not attract central excise and customs.

However pre-packed gaming software imported in the physical medium for retail sale continues to attract customs duty of 8.24 per cent.

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(This article was published in the Business Line print edition dated March 2, 2010)
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