The Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 232/26/2024-GST on September 10, 2024. It gives clear guidance on the place of supply for data hosting services provided by Indian companies to foreign cloud computing providers.
The Problem
Businesses have raised concerns about whether data hosting services provided by Indian companies to overseas cloud providers qualify as exports. Additionally, questions arose on whether these services should be classified as intermediary services under the Integrated Goods and Services Tax (IGST) Act, 2017.
Key Points Clarified
1.Are Data Hosting Providers Intermediaries? The CBIC made it clear that data hosting providers do not qualify as intermediaries. Under Section 2(13) of the IGST Act, intermediaries are agents or brokers who help facilitate the supply of goods or services between two parties. However, data hosting providers deliver services directly to the cloud computing providers. They do not deal with the customers of the cloud provider. Therefore, these services are not intermediary services.
2.Place of Supply Based on Section 13(3)(a) Section 13(3)(a) determines the place of supply based on where the goods are provided by the recipient of the service. In the case of data hosting, the Indian companies own the hardware and other infrastructure. Thus, the foreign client does not supply these goods, and this section does not apply.
3.Are These Services Related to Immovable Property? Section 13(4) applies to services directly related to immovable property. However, data hosting involves much more than property. It includes maintaining IT systems, providing network services, and ensuring data security. As a result, this section does not cover data hosting services.
4.Place of Supply Under Section 13(2) Since the above sections do not apply, Section 13(2) is used to determine the place of supply. This section says the place of supply is where the recipient is located. For data hosting services provided to foreign companies, the place of supply is outside India.
Conclusion
Data hosting services offered by Indian companies to foreign cloud providers qualify as exports under the GST rules. To enjoy the export benefits, these services must meet the conditions mentioned in Section 2(6) of the IGST Act. This clarification helps Indian companies understand the place of supply for their services and ensures they comply with GST rules.
By knowing this, businesses can correctly classify their services and enjoy the export status, which comes with tax benefits.
For more information please refer below Circular:
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