OIDAR Services Under GST Regime

What is OIDAR?

Online Information Database Access and Retrieval services (hereinafter referred to as OIDAR) is a category of services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services. E.g. downloading of an e-book online for a payment would amount to receipt of OIDAR services by the consumer downloading the e-book and making payment.

Definition as per Section 2(17) of the IGST Act , 2017:

services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as,

–– (i) advertising on the internet; (ii) providing cloud services; (iii) provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet; (iv) providing data or information, retrievable or otherwise, to any person in electronic form through a computer network; (v) online supplies of digital content (movies, television shows, music and the like); (vi) digital data storage; and (vii) online gaming;

Extra Territorial Factor:

The nature of OIDAR services are such that they can be rendered from outside India. In a Borderless Digital World, with faster communication velocity and infinite cloud storage space the transactions are being rendered from any part of the globe. In the Service Tax Era, such a transaction was taxable under Reverse Charge Mechanism (RCM). The same is proposed here when the recipient is a Legal Person who registered for GST purposes by making the Place of Supply the Location of the Recipient as per Section 13(12) of the IGST Act.

Now, we have cases where individuals not registered under GST are receiving such services. In this case it is the Service Provider or its authorized representatives who should obtain GST registration in India and file the GST From 5A which has been specified for OIDAR providers. Principal Commissioner, CGST- Bangalore West has been specified the authority to provide such OIDAR Registration . The GST REG-10 Form has to be filled online by the OIDAR service provider and the Registration has to be provided in 3 days by the authorities. It should be noted that this process time bound process is totally non- intrusive. It goes a long way in creating a positive Ease of Doing Business Environment.

Non-Taxable Online Recipient :

 As per Section 2(16) of the IGST Act , 2017 a Non-Taxable Online Recipient is means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

Also, The expression “governmental authority” means an authority or a board or any other body, – (i) set up by an Act of Parliament or a State Legislature or (ii) established by any Government with ninety per cent or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.

In cases when the OIDAR service is also provided to Non-Taxable Online Recipient  from a person in a non-taxable territory then it is again the supplier who has pay the tax in a Forward Charge Mechanism. Hence, the supplier also has to register in India for GST and also file the returns, etc.In the above case, if the OIDAR service in this case was provided through an intermediately in India then it is the requirement of depositing the Tax and Compliance with GST  Law shifts to this Intermediary  in India.

An intermediately may not be required to pay the tax and take registration only of he is able to satisfy these Four Conditions:

(a) The invoice or customer’s bill or receipt issued by such intermediary taking part in the supply clearly identifies the service in question and its supplier in non-taxable territory

(b) he intermediary involved in the supply does not authorise the charge to the customer or take part in its charge. This means that the intermediary neither collects or processes payment in any manner nor is responsible for the payment between the non-taxable online recipient and the supplier of such services

 (c) he intermediary involved in the supply does not authorise delivery

(d) he general terms and conditions of the supply are not set by the intermediary involved in the supply but by the supplier of services

Compliance with these conditions would ensure that the intermediately is a genuine intermediately with no control over the transaction between the supplier and the recipient.

Note :- This Definition of Government Authority is highly relevant for other provisions as well as several services provided by the Government and to the Government have been exempted from GST. In the Service tax regime, this was an area of Litigation. Here, clarity is intended to be ingrained from the beginning.

Classification under OIDAR Service :

We have an indicative list of services in Section 2(17) of the IGST Act, 2017 (kindly refer to the list above). The Use of the Term “Such as” conveys that this list is not exhaustive but only  indicative but following the Legal Principle of Ejusdem Generis (which states that when a general word or phrase is accompanied by a list of specific persons or things, the general word or phrase will be interpreted to include only persons or things of the same type as those listed), it is clear that other services must also be of like kind.

 We can also consider the Definition in Section 2(17)which states Three requirements :

1. Mediated or supplied through the internet

2. Essentially Automated with minimal human intervention

3. Impossible to Provide without Internet.

Hence the below table provides a list of what would be consider an OIDAR and what would be not:

Equalisation Levy under Income Tax:

In the era of Multi-National Companies (MNCs) and Tax Havens , Digital Transactions are now being sought to be taxed even under direct tax laws. Accordingly , in the Budget 2016, the equalisation levy under to give effect to one of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan of G-20 countries. It was only supposed to levied on Online advertisement or any provision for digital advertising space or facilities/ service for the purpose of online advertisement. Such a service is the main revenue of Digital Giants such as Google and Facebook.The rate is only 6% of the Total Transaction.

We can see that the scope of OIDAR transaction is wider and it is hoped that it would provide a more level playing gorund for domestic and foreign Digital Companies. It is pertinent to note the requirement of being Atamnirbhar in the Digital sphere and not becoming a digital colony like Europe.