Today, our world is interconnected more than ever. In such a scenario, telecommunication services connect people and companies across geographical borders. Regarding the taxation of these services, the place of supply is crucial. TBE services include telecommunication, broadcasting, and electronically-supplied services.
Determining the location or place of supply becomes paramount for such services to ensure proper taxation. In this guide, we will discuss the place of supply, shedding light on the regulatory frameworks and considerations that govern these cross-border transactions.
GST On TBE Services
The Indian telecommunications industry is vast and spans the entire geographical expanse of the nation. It is the second-largest globally regarding total subscriber numbers. Currently, this sector can be categorized into three main segments: telecom service providers, infrastructure providers, and equipment manufacturers.
As per Section 2(110) of the CGST Act, 2017, any service encompassing electronic communication, voice messaging, data provision, audio-text services, video-text services, radio paging, and cellular mobile telephone services fall under telecommunication services. They are offered to users through the transmission or reception of signals, symbols, written content, images, sounds, or any form of intelligence. It happens via wire, radio, and visual or electromagnetic methods.
The telecommunication services are subject to a GST rate of 18% and the HSN code 9984. The applicable tax on various telecommunication services depends on the place of supply.
Place Of Supply For TBE Services
“Place of Supply” denotes the location where a specific service is provided. It plays a pivotal role in determining the taxation, regulatory adherence, and reporting responsibilities associated with the service. The significance of the place of supply is higher for telecommunications services as they frequently involve remote delivery.
Determining the place of supply for telecommunication services involves various criteria. A common method is to consider the service recipient’s location. Yet, this approach can pose challenges, particularly when multiple parties or the recipient’s identification is unclear.
Numerous countries have implemented rules and guidelines for finding the Place of Supply for telecommunication services. These regulations typically consider factors like the physical location of the network, the recipient’s billing address, the SIM card or device’s location, and the intent behind the service consumption.
The following services are included in the telecommunications category –
- Transfer of data
- DTH or direct-to-home television services
|Place Of Supply
|Where the telecommunication line, dish, etc.’ is installed
|Mobile and internet services (postpaid)
|Recipient’s billing address, as mentioned in the service provider’s records
|Mobile and internet services (prepaid) through a selling agent, distributor, reseller, etc.
|Selling agent or reseller’s address as per the supplier’s records
|Prepaid online recharge (internet banking or e-payment)
|Service recipient, as mentioned in the supplier’s records
|When the leased circuit is deployed across multiple States or Union Territories. Also, a unified fee is invoiced for the services associated with the said circuit.
|All participating States shall be treated as the place of supply. It will be per the proportionate value assigned to the services based on the relevant contract or agreement provisions
Cross-Border TBE Transactions
In cross-border telecommunication services, establishing the place of supply becomes more challenging. Guidelines from international agreements, including double taxation treaties or specialized regulations crafted by regional economic blocs, are key. They offer direction to untangle conflicts and uphold uniformity in taxation and regulation across borders.
The expanding digital economy and the surge of virtual communication platforms have increased the urgency for precise regulations regarding the place of supply. Governments and international entities are earnestly collaborating to formulate frameworks tackling the complexities of cross-border telecommunication services.
IGST On TBE Services
The Indian government issued a circular terminating the Goods and Services Tax (GST) exemption for overseas OIDAR providers on September 26, 2023. This policy shift was effective from October 1, 2023. It implies that entities like Facebook, Google, etc., will now be subject to an integrated GST (IGST) of up to 18 percent for the services rendered to private and governmental entities.
Before this recent regulatory adjustment, overseas companies offering OIDAR services to the Indian central government, state governments, government authorities, or people for non-business purposes were granted an exemption from taxation.
Compliance Requirements For TBE Services Providers
Determining the place of supply holds significant importance in establishing the applicable tax framework for telecommunication services. It serves as a crucial mechanism for governments and tax authorities to guarantee the accurate collection of taxes based on where the service is utilized. This aspect is particularly vital in the context of value-added tax (VAT) or goods and services tax (GST). It is because of the variations in tax rates and compliance requisites across different countries or regions.
Besides, the place of supply has substantial implications for regulatory adherence. Telecommunication service providers must conform to the regulations and licensing criteria of the jurisdiction in which the service is provided. This encompasses responsibilities regarding privacy, data protection, security, lawful interception, etc. A comprehensive understanding of the place of supply empowers service providers to ensure compliance with regulations and uphold essential licenses and permits.
Taxation Of Digital Services
As the digital landscape expands, regulatory focus has turned toward taxing services delivered via the Internet. These services, formally categorized as Online Information Database Access and Retrieval (OIDAR), encompass a range of offerings through online channels. These services are provided over the Internet. The recipient interacts with and receives them online, eliminating the need for a physical interface with the service provider.
OIDAR services in India were under the purview of indirect taxation in 2001. As the digital landscape evolved in 2016, the range of these services expanded. In 2017, the landscape saw a significant transformation with GST implementation. It leads to the inclusion of OIDAR services within GST taxation.
OIDAR is a service facilitated through information technology over the Internet or an electronic network as per Section 2(17) of the IGST Act, 2017. It incorporates various electronic services, like internet advertising, cloud services, and providing digital content online, etc.
Under the following scenarios, an 18 percent GST is imposed on selling digital services in India.
- Domestic OIDAR service providers must submit GSTR-1, GSTR-2, GSTR-3, and the annual GST return.
- International OIDAR service providers must submit Form GSTR-5A by the 20th of each month. A representative in India must be assigned to manage the filing of GST returns and ensure compliance.
The place of supply regarding telecommunication services is vital for service providers and consumers. It is a fundamental pillar for adhering to tax regulations and meeting regulatory obligations. It helps maintain the efficient operation of the telecommunications sector.
With the evolution of technology and global connectivity, the demand for clear guidelines for the place of supply has increased. Staying updated on these advancements assists service providers in navigating the challenges of the telecommunications landscape successfully. It guarantees uninterrupted service to users across the globe and ensures everything is sound on the legal front.
What Are Electronically Supplied Services?
An electronically delivered service refers to a service transmitted through the Internet (or an electronic network that relies on the Internet for its delivery). It relies significantly on information technology for its provision.
What Are Examples Of E-Services?
Emails, listening to music online, and paying an invoice through Internet banking are a few examples of e-services.
What Is E-Governance In India?
E-governance or electronic governance involves utilizing information and communication technologies (ICTs), including Wide Area Networks, the Internet, and mobile computing. The primary objective is to elevate the quality of governance through technological integration.
Are VAT And GST The Same?
Value Added Tax (VAT) is a consumption-oriented tax primarily concerning the end consumer of a given product or service. Unlike the Goods and Services Tax (GST), VAT does not maintain a consistent rate nationwide, with variations at the state level.
Is VAT Still Valid In India?
VAT continues to be applicable in India, even with the introduction of the GST. It has been assimilated within the GST framework.
What Are The Objectives Of Digital Transactions?
The primary goal of digital transactions is minimizing the expenses and risks associated with cash management. Online transactions foster greater transparency in monetary dealings.
What Is The Tax On Digital Marketing Services?
Digital marketing services are classified as “services” and liable to GST. In India, the prevailing GST rate for services is 18%.
What Is The Limit Of Digital Transactions In India?
Under the updated guidelines for UPI transaction limits, individuals can now conduct UPI payments up to Rs 5 lakh. The previous limit was Rs 1 lakh.
What Is Considered A Cross-Border Transaction?
Cross-border payments involve the transfer of funds or assets between individuals, businesses, financial institutions, or settlement organizations that operate in a minimum of two distinct countries. These transactions are characterized by their international nature.
Is ITC Available On Telephone Bills?
Yes, ITC or Input Tax Credit is available for telephone charges under GST.