OIDAR Services and its Taxability
OIDAR services
Section 2(17) of Integrated Goods and Services (IGST) Act, 2017 defines OIDAR (Online Information Database Access and Retrieval) as 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 involving minimal human intervention. It include electronic services, such as advertising on the internet, providing cloud services, online supplies of digital content, Website supply, website hosting, distance maintenance of programs and equipment, Supply of music, films, and games, Supply of distance teaching etc.
GST Applicability Before 1st of OCT 23
Foreign OIDAR service providers like Facebook Inc, Twitter Inc, Google, Netflix, Inc and others has a significant user presence in India and earn substantial revenue from their Indian customer base. Until now OIDAR service providers located abroad in non-taxable territories were exempt from taxation when received by the central government, state government, government authorities, or individuals for non-business purposes. The liability to remit the tax to the government was on the consumer if he was a GST registered person importing the service for business purposes, the GST would need to be paid under reverse charge mechanism.
GST amendment w.e.f 1 October 23
Effective October 1, 2023, GST exemption enjoyed by for overseas OIDAR service providers has been abolished. Now these foreign companies providing OIDAR to all individuals and government will have to pay goods and services tax Regardless of whether the services are used for personal or business purposes, would be chargeable to GST.
Earlier It was difficult for the tax authorities to figure out who is importing these services for personal use and who is using it for business purposes but now after New amendments OIDAR services taxable whether provided personal use or business use.
New Source of revenue to Govt
The move will open new source of revenue for the government as social media platforms, online search engines and other digital economy firms rendering services to Indian customers in a big way from their offshore subsidiaries are covered by this change. As per amended such service provider has to provide the detail of all supplies made. This will help Dept in tracking due payment of tax on reverse charge basis by such registered persons in India in respect of supplies received from OIDAR service providers.
Impact of Price of OIDAR Services
18% GST would be levied on OIDAR Services. Its impact may be felt by individual and corporate users after some time. After covid era where individuals users are more dependent and addicted of OIDAR Services Corporate users are more dependent of these services. In and after covid era there was a surge in OIDAR Services. Online education, live streaming of events and classes providing access to the library or recorded videos, Download of an e-book online etc were not taxable for individual user but now it would be subject to GST and it will increase the cost as such service provider will recover the said GST Cost from end user only.
Challenges from recent GST Amendments
Compulsory GST Registration,
Foreign firms providing OIDAR services are subject to GST on the supply of OIDAR Services to unregistered individuals, necessitating comprehensive registration and compliance with GST.
Compliance burden
Compliance burden will drastically increase for such OIDAR service providers as they would have to register under GST, remit taxes and file returns. As these company has to charge IGST on sales to unregistered individuals, It will require to make comprehensive record-keeping.
As per amended Rule 64 such service provider has to provide the detail of all supplies made in FORM GSTR-5A of CGST Rules, 2017. The supplier of OIDAR service should comply with GST as follows
a. The Supplier (or intermediary) of OIDAR services should take single GST registration for payment of IGST
b. If there is a person representing overseas supplier in taxable territory for any purpose, then such representative in India should pay IGST on behalf of overseas supplier
c. If the overseas supplier has no physical presence or representative in the taxable territory, then he may appoint a person in the taxable territory for the purpose of payment of IGST.
Place of supply of OIDAR Service
The GST applicability on OIDAR services depends on the location of the recipient of the service. Under Section 13 of the IGST Act 2017, where the location of the supplier or location of the recipient is outside India – the place of supply of OIDAR services shall be the location of the recipient of services.
Thus, under this Section, any recipient of OIDAR services is deemed to be in the taxable territory – if any two of the following non-contradictory conditions are satisfied:
- The Recipient gives an Indian address through Internet.
- The payment is settled by an Indian credit card /debit card/other card.
- The recipient has Indian billing address.
- The computer used by the recipient has Indian IP address.
- The recipient uses an Indian bank account for payment.
- The country code of the subscriber identity module card used by the recipient of service is of India.
- The recipient receives the service through an Indian fixed land line.
GST applicability on OIDAR services
The taxability of OIDAR services is dependent on the location of the recipient and GST liability is determined accordingly:
i. If both the supplier, as well as the recipient, are in India, then GST will be applicable and will be charged on the basis of forward charges.
ii. If the supplier is outside the taxable territory, and the recipient located in India is registered under GST, then GST will be applicable and payment of GST will be on reverse charge
iii. If the recipient is residing in India, but is not registered under GST, and the supplier is outside the boundaries of India, then GST will be applicable, and payment for goods and service tax will be on forward charge basis.
Registration process for OIDAR service providers
The application for GST registration must be submitted at least five days prior to the commencement of business in India. Where OIDAR service providers located in India can obtain GST Registration through the normal procedure by applying through the GST portal. In other case foreign companies can appoint a representative in India for obtaining GST registration, filing GST returns and paying GST payments on behalf of the foreign entity.
All OIDAR service providers supplying services to residents in India and not located in India are also required to comply with GST regulations. Any OIDAR service provider supplying services from a location outside India to a non-taxable online recipient is required to obtain GST registration by filing GST REG-10. The application for GST Registration for OIDAR service providers can be submitted electronically with a self-attested copy of valid passport of the promoters and tax identification number or unique identification number issued by the foreign Government or PAN.
Conclusion
After covid era there is huge usage of OIDAR Service where other Entertainment users have increased, users of online Education has been increased multiple times. Where These GST amendments will increase the revenue of the Government, it will impact the cost of living for end users specially students. Where the public is already worried about inflation, said amendment will increase the cost of the public as such service provider will recover the increased tax cost from end users. These amendment will expand the horizon of GST and making all such foreign service providers to take registration in India and pay GST with due compliance as per the GST law and increase compliance burden on OIDAR Service provider Meanwhile it will open new scope for GST Practitioner.
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I have an observation to make here. OIDAR services provided by the service providers from non-taxable territory were required to take registration as per Notification 2/2017- IT dt 28.6.2017 in Bengaluru West Commissionerate and discharge tax liabilities on the services provided to the Government, location authority and individuals for non business purpose right from 1.7.2017 onwards. Please read Section 14 of IGST Act 2017 in this regard.
Therefore, it is not correct to say that the said services were made taxable only from 1.10.2023 and were exempted earlier.
Change made from 1.10.2023 is with regard to taxing online money gaming services provided by the service providers from abroad by taking registration in Bengaluru West Commissionerate as per the provisions of newly inserted Section 14A of IGST Act 2017 and the Notification issued thereunder.
Please correct me if my understanding is wrong.