What is GST? and its effects on Web Hosting Companies?
We as a nation have grown up until now with paying multiple taxes may it be service tax, cess, entertainment tax, luxury tax, yet somehow being a country with second largest population in the world our tax base has been the least compared to other countries in the world. India has a very low GDP to tax ratio. According to recent stats by the Income tax department there are roughly 7.5 crore taxpayer’s. Imagine a country whose population is 135 crore only 7.5 crore people pay tax. Let’s not forget indirect taxes we are paying whenever we pay bills at restaurant or buy movie tickets. Now question to be asked is how much money from this tax amount goes into government’s treasure.
Goods and Service tax (GST) will help reducing tax evasion, broaden the tax net, black money evasion. So when the clock struck midnight 12 on July 1st 2017 India embarked itself on a new journey towards achieving new milestones. Goods & Services Tax a.k.a GST was rolled out. It was a great achievement after policy of Globalization & Liberalization in 1991 that India had adopted.
GST was a long awaited tax reform that was being delayed almost for a decade & half. It took almost 15 years for GST bill to get passed in parliament. Goods and Services Tax will bind the entire country in one nation one tax reform system. But now you guys might be wondering what exactly is GST and how it is going to affect us or specifically web hosting industry.
Now moving from one tax system to another it is going to cause a lot of pain. Its more than 70 years that people from our nation are accustomed to. It’s not easy to migrate from one system to another, it’s not going to happen overnight and it will take time. You guys might be wondering what exactly is GST? How it is going to affect day to day life for a web hosting company firm? What necessary changes one needs to make for tax payment?
Don’t worry take a deep breath because you just have landed on an article which will try and clear all your queries.
What is GST?
GST is nothing but a tax reform which will subsume all the present tax which are being collected by central government as well as the state government. These tax can range from direct tax like excise duty, value added tax (VAT) to indirect tax like luxury tax, entertainment tax. All these tax will be replaced by Central Good and Services Tax(CGST) and State Good and Services Tax(SGST). GST tax has been divided into 4 categories 5%, 12%, 18% 28% with lower being for the essential items and the higher being for luxury and demerit goods which will also attract additional tax percentage.
So to give you guys an idea how exactly was previous tax structure and what is current tax structure (GST)
Previous tax structure-
When I say previous tax structure it is the tax before July 1st 2017
Current tax structure (GST)-
The current tax structure is effective from July 1st 2017
Now you guys would be having doubts under which category do we fall in GST and how do we have to charge our clients or customers?
So let’s dig deep down in GST tax system. GST will be implemented by dual authorities in that would be comprising of Central & State government. Whatever tax that will be charged to the consumer will be bifurcated to central government & state government. Speaking about the IT industry, this sector falls under flat 18% tax slab. So companies would have to charge their consumers 18% tax on whatever service they are providing to the consumer.
So now you guys might be wondering GST will be implemented by State government as well as central government, so what is the registration process?
Yes GST would be implemented and monitored by state government as well as central government. When it comes to registration there are 3 things one needs to consider.
1. If your turnover is under 20lakhs you don’t need to register for GST because government has decided a tax slab of 20 lakhs which means companies whose turnover is less than 20lakhs are not liable to pay taxes. If your companies turnover is above 20 lakhs then you need to register yourself for a GSTN
2. If you are an existing tax payer like if you have registered yourself for service tax, VAT, then you need not need to register for GSTN as you would be migrated from the existing system to the new GST system and a GSTN would be generated for the user. If there is some information missing then the authorities would notify you for the same via email or phone.
3. If you are a new user you want to register for GSTN you can simply log on t www.gstindia.com and register yourself.
Once you have registered yourself with GST there would be no separate registration for SGST or UGST.
Hmm.. now that we will be charging 18% to consumers then how will be it bifurcated to respective governments?
Service provider has to provide levy tax to consumer depending upon their location So here it is how it will work out.
These are some scenarios in which consumers should be charged. To get more clarification let’s have a look at each one of them with some scenarios
Interstate:
So let’s say a service provider is selling his service is based in Maharashtra and the consumer is based in Punjab. So you are providing your hosting services to the customer from one state to another state. In that case you need to be registered on both the states for GST number (GSTN). Once you are registered in the both the states you would be charging your consumer IGST (Integrated Goods & Services tax) at the rate of 18%.
Intrastate:
In second case if you are based in Maharashtra & you are providing service to the person who is also based in Maharashtra, in such case service provider has to charge consumer SGST +CGST at the rate 9.0%+9.0%. Also the service provider has to be register for GTSN.
Import of services:
In case some services which are being imported from outside India they would also be charged at 18% under the pretext of IGST.
Export of Services:
In case if services are being exported to a consumer outside India then the export of services is exempted from the tax regime.
The bifurcation of tax payed to central, state or union territories would be taken care by the government officials you guys don’t need to worry about it.
Now you might be thinking what GSTN is and who all need to register for it?
It’s good for both the service provider and consumer to register for GTSN. In case if service provider or consumer is eligible for refund of tax amount then they need to be registered with GST system and need to present GSTN for refund. Service providers who are having turnover less than 20 lakhs are exempted from the GST tax slab earlier it was 10 lakhs in the indirect tax payment. Even though a consumer who is exempted from the GST tax slab it is advisable to have a GSTN.
Services provided by Hosting companies it falls under “Online information and database access or retrieval services (OIDAR)” like wise
The definition of OIDAR is defined under 2(17) under IGST act and it says-
OIDAR means services whose delivery is mediated by information technology over internet or an electronic network whose nature of which renders their supply essentially automated and involving minimal human intervention and is impossible to ensure in absence information technology
Everything just went over head I know, to speak in simple English its nothing but services provided over internet and it’s the only source through which you can render service to a consumer if it goes down than your services to the consumer also go down.
OIDAR is a service under which anyone who is providing services over internet without any human intervention or minimal human intervention are included in it. Web hosting services carried out by HostingRecipe.com and other domain providers are included in it. Some of more industries which are considered under OIDAR are as follows-
· Advertising services
· SAAS platforms
· Cloud storage
· Online gaming services
Online supplies of digital content like movie, eBook’s, television shows.
One thing to be considered is the registration process for services which are provided under OIDAR is that as per normal tax slab under which a user needs to be registered for GSTN is 20 lakhs but for OIDAR services one needs to register for GSTN irrespective of their annual turnover. The following types of people need to be registered for GSTN-
· Persons making any inter-State taxable supply
· Casual taxable persons
· Persons who are required to pay tax under reverse charge
· Electronic commerce operators
· Non-resident taxable persons
· Persons who are required to deduct tax
· Persons who supply goods and/or services on behalf of other registered taxable persons whether as an agent or otherwise
· Input service distributor (whether or not separately registered under the Act)
· Persons who are required to collect tax
· Electronic commerce operator
· Every person supplying online information and data base retrieval services from a place outside India to a person in India, other than a registered person
Relax guys nothing to be scared about process for registration is same and simple and you won’t be taxed if your annual turnover is under 20lakhs, so there is nothing to be scared about.
GST tax reform has just begun and it’s not even completed a month, There’s still a long way to go let the dust settle down the picture would be more clear 6–7 months down the line but one thing is for sure it’s going to be a boon for India and importantly for the services providing sector.
