Is Domain name buy-sale outside India, taxable?, Service Tax

[Bipin Tripathi]

Hello, 

 

I am Domainer from India.

I buy-sell domain names from and to outside India.

will these transactions comes under any taxation liability?

Please help.

Posts / Replies

[Joginder Pal]

You need to explain your business model in detail to reply in specific. In general, you appear to be taxable under the Service Tax as such type of service is not covered under Exempted/Negative list.

[Seetharaman K C]

If you are providing service of registration of Domain names then it is a service which is liable to service tax as this is purely a service where you are facilitating the registration of the Domain name. Service tax would be chargeable @ 12.36%

[Bipin Tripathi]

Thanks All.

Here I describe little more about my work.

 

1. I am domainer from India, I buy-sell domain names only, you can say reseller business.

2. I hold domains for 1-2 years and finally sell to my foreign clients.

3. I dont provide any domain registration service as well.

4. Sometimes I sell domains to Indian buyers too.

5. I register domains from Godaddy.com only, which is outside India based.

My Question is :

If I have to open a Proprietor firm then, 

Does my work comes under Service/Sale Tax?

Do I have to pay income tax only, on the profit gained from sale of domain names?

[Radha Arun]

Mr Tripathi, you need to tell us what you mean by "buying" and "selling" domain names. This looks like a transaction in intellectual property rights, and the terms of the transaction will determine whether it is liable to service tax in India (as recipient of service) or whether it comes under VAT, in which case one has to determine the situs of the transaction to determine whether it attracts VAT.

[Bipin Tripathi]

Mr. Arun, 

Thanks for your comment.

Let me tell you, buying-selling domain names here, stats that, I buy-sell url (for Example: abc.com)

Here abc.com is known as Domain Name.

If i want to open a firm (Proprietor based firm), do i need to register in service tax/sale tax?

I mainly buy sell domains outside india, then also i have to register for any tax liability?

Under which tax category, domain trading comes?

Please provide your valuable response to my questions.

 

Thanks

Bipin

[vijay kumar]

As per the definition of "service" under Section 65B(44) of the Finance Act, 1994, your activity is a taxable service since there is an activity for a consideration by a person for another person. Though it is not covered under IPR related declared service (since it is a permanent sale and not temporary transfer), it would be taxable because it is not under the exclusion clause of the definition/negative list/exemption. Further, in the TCS case, the Apex Copurt held that sale of customized software attracts service tax and sale of packaged off the shelf software attracts VAT. Though it is not software, in principle, transfer of intangible property would attract service tax rather than VAT. However, from the Place of Service Rules, 2012 it would seem that your activity would be taxable only when the domain name is sold in India since in that case, both the service provider and receiver are in the taxable territory. In other cases where the buyer is located abroad, it is not taxable. For taxable transactions u r required to get registered under service tax (not under VAT since there is no sale of goods nor deemed sale of goods), even though it is a proprietory firm, provided ur taxable value exceeds Rs.10 lakh.

[Radha Arun]

Mr Tripathi, you still have not explained what buying / selling domain names means. Your answer was 'I buy-sell url'. What we need to know is, what does buy-sell mean in this case. What are the rights that are transferred? For what duration? What rights are not transferred? Only upon knowing this can we decide whether this is a sale in law, or a service.

[Seetharaman K C]

The basic question still remains unanswered as to whether the activity is an outright sale or a service. Now one way to distinguish could possbly be as follows:

What is it that is owned which is being sold? Here I think what is owned is the space in a domain somewhere which has been reserved in the name of the seller. This means it is the right to use the name and also maybe allocated space in a server somewhere which is being traded at a premium. The amount paid as yearly fees for the domain name is nothing but fees paid to the Registrar to maintain the record of domain names.

Now the question is when this right is sold at a premium whether this would be subject to service tax? If the process given above is what takes place then there is no provision of service in this case as what is being traded is a right and hence would not involve service tax. 

 

[Bipin Tripathi]

Here I clarify my question again in deep:

I buy/sell domain names (Domain means names which we put online to open a website. For example: hdfc.com)

Domains are names as online addresses. For Example: icicibank.com

I buy name from a person/organization and finally sell it after 1 year or within a year to some other person/organization. Its somewhat called Domain names Trading/Reselling.

I hope my question is more clear now. If any problem persists yet, I am available to clear it out regarding my question. 

Now, I need to ask whether domains trading are taxable if the buying and selling are happening outside India only.

Although I more appreciate answer from Mr. Vijay Kumar. Thanks Sir.

But, still I want to carry on this discussion to get more clear about it.

Also, I want to know whether profit earned by me by this business, have some exemptions in Income Tax also?

Please feel free to put your views/response.

This topic is quite new in India, and together we will get the every doubts cleared.

 

Thanks

Bipin Tripathi

 

[Seetharaman K C]

Your recent reply seems to indicate that you are in fact are paying registration charges for the domain name which is paid to the registrar of domains for keeping record of registered domains. Also when you resell you are still charging registration charges for the domain name which is a service provided. Whether you are charging more or less the fact remains that you are providing service for the registration of domain name and also making a premium while doing this registration. I am sure when you sell the domain name you would have to change the registration particulars with the domain registrar.Now whether only the registration portion would be subject to service tax and whether the premium portion would not be is a debatable issue however considering the Valuation Rules in place the whole amount would be taxable. Also once you have registered the domain name in the name of a buyer at a premium for the first time, the customer would be paying only renewal registration charges every year. I hope that this discussion would eventually help us to reach the most appropriate answer. I have come accross a write up by an US Consulltant on this issue which may be helpful

The relevant portion of the article is as reproduced below:

• Are domains considered owned or leased? 
  It makes a difference in tax law whether you own the domain, as you would own say, a vacant lot, or is it a leased asset such as a telephone number? Some have argued that the yearly fee you pay to your registrar is a lease payment, and others say it's simply a fee that you pay to have the registrar manage the ownership records.
• Are you buying and selling domains as a business? 
  If you're in the business of buying and selling domain names, the IRS will look at the income differently than they would if you occasionally buy a domain as a personal investment. H&R Block, for example, in answering a question about what form to use to report the gain on a domain sale, writes: "It depends on if the domain name was a business or personal asset. If business, use Form 4797. Otherwise report the sale on Schedule D." Schedule D is for capital gains. But it's not so simple.
• Should a domain name be considered as a "Trademark" for tax purposes? 
  Depending on how you use a domain name, if it's generic or brandable, and what the brand value is of the domain name, you may have to treat the domain differently, and consider a portion of it more like you would a trademark for tax purposes. In this case, how is the income from the sale of a domain name handled?

Since domaining for profit is a relatively new business, the fact is that nobody really knows the rules, tax rules notoriously have a lot of gray areas. According to a recent article in Domain Informer, "domains could be intellectual property, inventory, business assets, government licenses, a form of real estate, or a host of other things. The truth is, nobody really knows yet how they should be treated, so together accountants and domainers are taking their best guess and hoping they don’t get audited by tax authorities."