Hello Everyone,
As you guys are discussing about the currency conversion issue and the loss you are incurring during the payments made to service provider. Let me share some of my suggestions for you guys.
1) In case your business has 60-80% of PayPal transaction. You will be receiving all the funds in INR. As PayPal holds nostro accounts in Citi Bank. They have to convert the funds in INR before transfering to all Indian Merchants according to RBI regulations. Now all know this fact.
2) Now to reduce the currency conversion loss, Partial Solution is Create EEFC Bank Account, where you make sure have Dollars and Euros Account. Withdraw funds from Payza, Skrill to these account in the same currency. At the end of the month you will have atleast 40-60% funds in foreign currency in these EEFC Account.
3) Make a deal with your service provider, there will be delay of 7-8 working days for making payments. As you are restricted by Indian Government for not maintaining balance in foreign currency with PayPal which holds 60-80% of your business transaction and are forced to withdraw funds to Indian Bank accounts. Before making payments to service providers.
4) Make all the payments to service providers through EEFC Bank Accounts which has foreign currency balance, through Bankwire Transfer. Though this bit hideous work, needing some documentations to be done with certified by your CA and Bank Personals for each transaction. So plan out few transactions covering all the service providers, avoid many service providers for now.
5) Note: Any guys using debit card or credit card to make payments to your service provider. This will be closed down by Indian Government and will be restricted to above Bankwire Transfer only method to be followed.
NOW THE MAIN ISSUE
1) Many of you guys or companies do not know that they are liable for advance service tax of 15% on total import of services since 2012 "Reverse Charge Mechanism " introduced. You need to get registered with Service Tax Department from Zero Income. Not wait till 10lacs of company Income. Companies like "Resellerclub" which was in India had to shift "Dubai" where there is no taxation only yearly company license renewal fees.
2) According to "Reverse Charge Mechanism" Any service availed from Service Provider Outside Taxable Territory, Service receiver being in Taxable Territory(i.e., In India) Needs to pay advance 15% Service Tax under "Input of Services". Consider you import 1000Euros of leasing dedicated servers. You pay Service Tax 15% i.e., 150Euros for importing.
3) But you need not worry, you can get the 15% refund from service tax department. By showcasing all your exported services i.e., informing the department you have more than 90% of clients who are located outside India. And according to Service Tax law, Exporting of services is exempted. You need to make sure file for refund immediately within 1 year max after making payment towards service tax. Consult your CA for this process for detailed information.
4) For 3rd point to workout. You will loose CA Fees, Some percentage of total refund amount you need to pay officers as bribe to get it done without any hiccups. Even though your company accounts is tallied. And refund claim above 5lacs, Service Tax will conduct Tax Audit at your premise before approving refund claim.
5) In case, you don`t have large number of foreign customers. Say 40% Indian customers and 60% Foreign Customers. You collect the service tax from Indian customers, as you have paid advance service tax. So you wont be needing to pay the service tax amount you collected from Indian customers. Ask your CA to file for adjustments towards Advance Service Tax Paid. And file for refund of remaining 60% showing you have exported the services to foreign customers.
6) We have followed above procedure and we have received refund from Service Tax department without any hiccups.
6) In case you are running business on very low margin of profit and trying to hit the competitors. Without knowing above legal aspects, then you are in serious dump. As your company income increases, these government agencies will get active and start hunting down. Precaution is better then cure. As you will be penalised with hefty fines and need to pay service tax for these years of business.
7) Now in December 2016 , Indian Government became more clever to bring down companies like "Resellerclub" under their service tax laws.
https://blog.resellerclub.com/service-tax-on-cross-border-online-services-in-india-explained/ . Even companies who went outside India for keeping all their company operations outside India and giving support services from India... Taking exemption of 100% for export of Support Services. All are now binded under service tax again now.:facepalm:
8) So the conclusion is that if you dont have larger margin of profit in Hosting Business or you are not backed up with big investors or VC`s. Then to covering up all the above procedure will hit business like anything.
Above all things we are able to share is because we invested around 1.5 lacs with Service Tax Experts opinion`s and these experts are well recognised by Service Tax Department. Above points are based on opinion`s we received from all service tax experts.
We share common moto
"Provide Quality and Uninterrupted Hosting Services to the respective clients". If this information is new to you, better take action on your business from today without taking government agencies and laws lightly.
