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Freelancing for Foreign Clients Is Service Tax Liability incurred

In case a freelancer has been providing services to companies/ clients situated outside India, there is no service tax liability attracted as such services are deemed to be export of services.

What is Export of Services?

The word of law ( Rule 6A of Service Tax Rules) states that to treat any service as an export of service, all the following conditions have to be true:

a) Service Provider is in Taxable Territory (i.e. the whole of India except state of Jammu andamp; Kashmir).

b) Recipient of Service is outside India.

c) The service is not specified in the Negative list of Section 66 (i.e. it has to be a service on which service tax is normally levied)

d) Place of provision of service is outside India.

e) Payment for services has been made in convertible foreign currencies such as dollars, euros.

f) Provider and recipient are not mere establishments of distinct person.

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To further elaborate on the main conditions above,

1) Location of Service Recipient: Where the recipient of service has obtained a single registration , whether centralized or otherwise, the premises for which such registration has been obtained.

Further points to note are:

a) When the receiver of service is unregistered, then his location shall be the location of his business establishment.

b) If the services are used at a place other than business establishment, such other place shall be the location of the service receiver.

c) Where the services are used at more than one establishments, the establishment most directly concerned with the use of the service will be the location of the service receiver.

d) Lastly, in the absence of any such places, the usual place of residence of the recipient of service will be the location of the service receiver.

2) Place of provision of service (POP):

Place of Provision (POP) of Service Rules, 2012 prescribes specific Rules for determination of place of provision for a number of specific services.

However, as per Residuary rule 3, of POP Rules, 2012 where a service does not fall under any of the specified rules, then the place of provision shall be the location of service receiver.

Also, Rule 4 should be noted as it talks about services performed in respect of goods/individuals and not merely any performance service - and states that place of provision shall be the location where the services are actually performed.

Rule 4(a) says, where the services are provided in respect to goods that are required to be made available by the Service Receiver to the Service Provider ,the place of provision shall be the place where services are performed. e.g: Warehousing, repair, testing, maintenance.

Rule 4(b) relates to services that are provided to an individual who is either the recipient or his representative ,which require the physical presence of the Service Recipient with the Service Provider, the place of provision shall be the place where services are performed. e.g: Health Care, Education.

3) Establishments of distinct persons:

Where the same person has an establishment in a taxable territory and any other establishment in a non-taxable territory,these 2 establishments will be treated as establishments of distinct persons. And any export between them will be taxable and not exempted.

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