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Domestic tech firms burdened after increase in service tax
March, 05th 2015

Small and medium scale IT companies, particularly those in outsourcing business, are concerned about the increase in service tax and also the Union government’s plan to impose 2 per cent Swachh Bharat cess on service. As most of the MNCs like Google, Dell, Amazon, and Yahoo have offices in India, their work is not deemed as IT exports. They thus have to pay both service tax and TDS, and also the proposed Swachh Bharat cess.

“Earlier, the 2 per cent education cess was included in the 12 per cent of service tax, but now the proposed 2 per cent Swachh Bharat cess is on the total service amount. Now after increasing the service tax by 2 per cent, medium and small IT companies have to pay 14.36 per cent of service tax, 10 per cent TDS and 2 per cent Swachh Bharat cess, which will be an additional burden. For every invoice raised domestically, service tax has to be paid even if there is a delay in client payment. If invoice is raised this has to be paid.

Previously, we could pay after the client paid and it was 10 per cent. Now we have to pay even if the client does not pay,” pointed out Rushikonda IT Park Association’s vice president O. Naresh Kumar.

He added that previously MNC used to pay in dollars and there was no income tax or service tax. Now since they have India operations they pay in rupees and service tax is applicable.

“We want that only the service part of the 1/3rd invoice value at 33 per cent of the invoice be treated as service and not 100 per cent of the value as service for levy of service tax. There will be severe cost cutting, and with heavy competition from low cost countries like Philippines, Russian block countries, China and reduced billing, there will be more work and less pay,” he added.

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