232/26/2024-GST — Clarification on place of supply of data hosting services provided by service providers located in India to cloud computing service providers located outside India.
Summary
This circular addresses a common question about Goods and Services Tax (GST) for Indian data hosting companies. Specifically, it clarifies where the supply of data hosting services is considered to take place when these services are provided by Indian companies to cloud computing companies located outside of India. The CBIC issued this circular to remove ambiguity and ensure consistent application of GST rules.
Essentially, the circular states that if an Indian company is providing data hosting services to a foreign cloud computing company, the "place of supply" will be the location of the recipient of the service (i.e., the cloud computing company outside India). This is because data hosting is categorized as a "service" and, as per existing GST laws, the place of supply for services to unregistered persons is the location of the service provider.
This clarification directly impacts Indian data hosting service providers who deal with overseas cloud computing companies. These providers need to correctly determine their GST liability based on the place of supply. Since the place of supply is outside India, this would generally be considered an export of service and would be zero-rated, meaning GST is not applicable, provided they fulfil the conditions for export under GST law. However, they would still need to obtain a Letter of Undertaking (LUT) or pay IGST and claim refund. The effective date is from the date of issuance of the circular, i.e., 11th September 2024, and applies to all ongoing and future transactions. No specific deadlines are mentioned, but companies should immediately review their current transactions and ensure compliance with this clarification.
Key Changes
| Change | Impact |
|---|---|
| Clarification on Place of Supply (PoS) for Data Hosting Services: The circular clarifies that data hosting services provided by Indian service providers to cloud computing service providers (CCSPs) located outside India are considered intermediary services. | This clarifies the ambiguity surrounding the PoS, specifically categorizing these services as intermediary services, impacting how GST is levied and collected. |
| Determination of PoS as Location of Supplier: As these services are classified as intermediary services, the PoS is the location of the supplier of services (i.e., India). | This means that these services are subject to GST in India, regardless of where the end customer of the cloud computing services is located. It simplifies the determination of GST liability. |
| Implications for Export of Services: The circular implicitly implies that these data hosting services do NOT qualify as export of services under the IGST Act, as the 'place of supply' condition for export (i.e. outside India) is not met. | Indian data hosting providers cannot claim zero-rated supply (export benefits) for these services, as the place of supply is determined to be in India itself. This increases their costs and potentially reduces their competitiveness. |
| Rejection of Alternative Interpretation: The circular implicitly rejects the alternative interpretation that the data hosting service is directly used in relation to the cloud services offered by the foreign CSP to the end user. | This prevents the argument that the place of supply should be the location of the end user of the cloud services, ensuring that the GST is levied in India. |