1. Introduction

1.1 With effect from December 1, 2016 the taxability of Online Information and Database Access or Retrieval (‘OIDAR’) services shall undergo a complete change. The Government vide Notifications No 46/2016-ST, 47/2016-ST, 48/2016-ST, 49/2016-ST and Circular No 202/12/2016-ST all dated 9th November, 2016 has made sweeping amendments in the OIDAR services.

1.2 This article aims to cover all the amendments introduced, their impact on the industry at large and how the foreign entities providing OIDAR services to Indian consumers need to be vigilant about their taxability in India.

Kindly note these amendments shall come into effect from December 1, 2016.

2. Structure of the article

2.1 The article has been written in a format to answer two questions:

a. Is there a change in the definition of OIDAR services? What are the new inclusions and exclusions?

b. Taxability of OIDAR services and related statutory provisions.

3. What are OIDAR services?

3.1 Till now the defintion of OIDAR servicesis governed under Rule 2(l) of the Place of Provision of Services Rules, 2012 (‘POPS Rules’). The defintion is as follows:

“Online information and database access or retrieval services” are services in relation to online information and database access or retrieval or both, in electronic form through computer network, in any manner”.

3.2 With effect from December 01, 2016, the definition of shall be shifted to Rule 2(1)(ccd) of the Service Tax Rules, 1994 and defined as follows:

“online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronicnet work 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 via 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, etc.);

(vi) digital data storage; and

(vii) online gaming’’

3.3 Stating succinctly, there are two primary enablers for a service to be categorized under the category of ‘OIDAR services’-

i. Provision of Service via Information Technology (using internet or other electronic network); and

ii. Automatic delivery of such service, i.e., with minimal human intervention

4. Examples of OIDAR services (and Non-OIDAR services)

4.1 The following may help illustrate the applicability (and non-applicability) of the afore mentioned enabler provisions:

S.No. Description of service Via IT Automatic Delivery Service Category
1 Providing Consultancy over e-mail Yes No Consultancy
2 Educational courses with live video lectures Yes No Commercial training
3 Distance learning requiring limited or no human intervention including virtual classrooms Yes Yes OIDAR
4 Pdf file downloaded from website Yes Yes OIDAR
5 Pdf file sent by provider directly Yes No Case specific
6 Cloud Storage facilities Yes Yes OIDAR
7. Downloading audiobooks from app/ website Yes Yes OIDAR

5. Taxability pre-December 01, 2016

5.1 Currently, these services are being governed by Rule 9 of the POPS Rules which states that place of supply in case of OIDAR service shall be the location of the service provider. Hence, any OIDAR service received from a foreign service provider by a taxable person in India does not attract Service tax.

5.2 Further, Governmental authorities and individuals (for personal consumption) also receive special exemption benefits under the Mega-Exemption Notification No. 25/2012-ST wherein any service received by them from a person located in the non-taxable territory is exempt from Service tax.

6. Taxability post-December 01, 2016

6.1 Notification No. 46/2012-ST seeks to omit Rule 9(b) of the POPS Rules and also seeks to amend proviso to Rule 3 of the POPS Rules. As a consequence, OIDAR services shall be governed by Rule 3 of the POPS Rules meaning that the place of supply shall be the location of the service recipient. This change effectively means that OIDAR services rendered by foreign service providers that was hitherto exempt from Service tax shall now be taxable.

6.2 Notification No. 47/2016-ST takes away exemption from Governmental authorities and individuals (personal use) with regard to OIDAR services by amending Notification No. 25/2012-ST. This means that OIDAR services received by the above persons from foreign service providers that were earlier exempt, shall now be taxable.

6.3 Notification No 48/2016-ST amends the Service tax rules which are as follows:

(i) Government agencies, individuals using OIDAR services for personal use have been defined as “non-assessee online receipients”;

(ii) OIDAR services have been exhaustively re-defined as mentioned in para 3.2 above. Both, inclusions and exclusions have been covered;

(iii) B2C OIDAR transactions have been removed from reverse charge mechanism and the service provider has been made liable to pay Service tax for such B2C transactions;

(iv) Any person representing the overseas service provider shall be the person liable to pay Service tax in India;

(v) Person receiving OIDAR services shall be deemed to be located in the taxable territory if any two of the following non-contradictory conditions are satisfied:

(i) the location of address presented by the service recipient via internet is in taxable territory;

(ii) credit/debit/any other card by which the service recipient settles payment has been issued in the taxable territory;

(iii) service recipient’s billing address is in the taxable territory;

(iv) internet protocol address of the device used by the service recipient is in the taxable territory;

(v) service recipient’s bank in which the account used for payment is maintained is in the taxable territory;

(vi) country code of the subscriber identity module (SIM) card used by the service recipient is of taxable territory; and

(vii) location of the service recipients fixed land line through which the service is received by the person, is in taxable territory.

(vi) A service receipiet shall be deemed to be a non-assessee online receipient if such person does not have service tax registration.

6.4 Notification No 49/2016-ST seeks to amend Notification No 30/2012-ST related to reverse charge mechanism and makes B2C OIDAR services subject to forward charge and makes the foreign service provider liable to pay Service tax. However, B2B OIDAR services shall continue to be taxed under reverse charge.

6.5 The following table shall highlight the impact of changes on OIDAR services:

S.No Service Provider Service Recipient Exigibility of ST Person liable
Indian Foreign Indian Foreign
1 NA OIDAR provider Government/ Individual (personal use) NA Yes Service provider
2 NA OIDAR provider Companies, Proprietor, Partnership etc. NA Yes Service recipient
3 OIDAR provider NA NA Any person No NA
4 OIDAR provider NA Any person NA Yes OIDAR provider

7. Procedural Provisions

7.1 OIDAR service providers located in the non-taxable territory shall be liable to pay service tax on their services only if they cross threshold limit of INR 10lakh for provision of taxable service in India in previous financial year (Notification No. 33/2012-ST). Note: For determination of applicability of this notification, turnover of such services in the previous financial year provided by foreign service provider to non-assessee in India shall be seen (disregarding the exemption notification applicable in previous year).

7.2 If such limit has been exceeded, the foreign service provider shall have to seek registration in India. Alternatively, he can appoint an agent to act on his behalf. Other compliances involve payment of tax, filing of statutory returns in India by such service provider (or agent acting on his behalf).

7.3 Further, no facility of CENVAT Credit shall be available to the foreign OIDAR service provider.

7.4 OIDAR service provider acting as intermediary – not taxable

7.4.1 An OIDAR service provider acting solely as an ‘intermediary’ between the foreign service provider and the Indian customer (Government, Individual [personal use]) will not come under the tax net. An example of this can be a website or application (also known as content aggregators) allowing purchase of multiple online softwares. In such a scenario, the tax liability shall be on the actual OIDAR service provider and not on the intermediary.

7.4.2 In order to qualify as an intermediary, the mediating OIDAR service provider shall have to satisfy all of the following conditions:

1. Invoice raised by the mediating OIDAR service provider should clearly specify two aspects:

i. Service being provided by it; and

ii. Details of actual OIDAR service provider in the non-taxable territory.

2. The mediator shall not take part in payment processing activity between actual OIDAR service provider and the Indian customer;

3. Delivery of product offering is not mediator’s responsibility; and

4. Intermediary does not partake any role in setting up of terms and conditions involved in provision of service by the actual service provider.

7.5 Who shall not be considered as taking part in providing OIDAR services:

i. Payment processing Companies (such as Credit Card Companies or Banks);

ii. Internet Service Provider;

iii. Telecom Service Provider. However, if the network is essential for provision of such OIDAR service, the said service provided by Telecom Service Provider shall be deemed to fall under the OIDAR service category; and

iv. Application Stores (such as Google Play store, App Store etc.)

  1. How Does This Affect The Industry

8.1 Enlarged definition of OIDAR services

8.1.1 The definition of OIDAR services has been considerably enlarged to include electronic services and now includes services of online gaming, online distance teaching, downloading music, content, news, provision of advertising space including banner ads on websites, use of search engines and internet directories, supply of softwares, website hosting, online maintenance of programmes, cloud storage etc.

8.1.2 Companies providing electronic services would now need to analyse whether their services would get covered under the enlarged OIDAR service net.

8.2 Impact on Indian business houses

8.2.1 Indian business houses procuring OIDAR services from foreign service providers were currently not paying Service tax. Those businesses that have an ouput service tax liability may be able to avail CENVAT of such newly introduced Service tax paid under reverse charge and may not be too impacted fiscally.

8.2.2 However, companies operating in goods/retail sector/trading, not having any/enough output service tax liability shall get impacted. Service tax paid under reverse charge will adversely impact their bottom line.

8.3 Impact on Individual consumers

8.3.1 Individual consumers consuming data/voice/music on the internet would now need to shell out more because the foreign service provider shall start charging Service tax of 15% on such downloads.

8.4 Impact on Foreign service providers

8.4.1 OIDAR service providers located outside India shall be most affected by these amednments, as all B2C transactions they enter into with non-assessee online recipients shall be subject to Service tax. Resulting, in registrations, payment of taxes and compliances in India.

8.4.2 Detailed procedures have been prescribed for managing compliances. Foreign service providers need to check if they are providing services to Indian non-assessee recipients and if that is the case, they would need to take registration in India.

8.4.3 There are loads of websites operating in selling digital content over the internet and these websites generally have no presence in India. All such websites would now need to take Service tax registration, pay taxes (subject to threshold limits) and file returns.

8.4.4 Foreign OIDAR service providers would now need to ask the service recipients their Service tax registration nos. In case the recipient doesn’t have/provide the STC, the liability to charge Service tax shall vest with the service provider.

8.5 Impact on Indian OIDAR service providers

8.5.1 Indian service providers providing OIDAR services were currently subject to Service tax since under the POPS Rules, their services were getting taxed at the place of service provider, i.e. India. From December 1, 2016 such services would not get taxed.

8.5.2 This means increased margins for those service providers who were taking a hit of the service tax in their bottom lines in the absence of customer agreeing to pay Indian Service tax. Alternatively, this could also make the service offerings of Indian service providrs competitve in the absence of any such tax now being charged.

9. Conclusion

This amendment is in line with the international principles enunciated by OECD on applicability of VAT on cross border sales, particularly related to B2C transactions.Even the model GST law provides for taxability of these services under the recipient based model.

This amendment is likely to have far reaching impact on the foreign service providers not having a presence in India. Online education websites like Udemy, Coursera etc and other branded service providers such as Fiverr would need to analyse the impact of these amendments on their operations in India. Should they get taxed under the new provisions, they would need to either appoint someone to manage compliances on their behalf or perhaps open an office to manage such changes.


Nimish GoelAuthored by Nimish Goel who is a Partner and Head of Indirect Tax/GST at International Business Advisors (www.ibadvisors.co). Nimish has a vast experience of more than 13 years in Customs, Excise, Service tax and VAT. Nimish has been a part of EY India and then with KPMG in Europe where he learnt the nuances of GST and is a regular author of articles on issues related to indirect taxes including GST. For any professional assistance, he can be reached on nimish.goel@ibadvisors.co. Sumit Vij, Assistant Manager, assisted him in this article.

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2 responses to “Online services – Foreign Businesses under Service Tax Net”

  1. Sumant Rawat says:

    we are commission agent , facilitate the sales in out of India and get commission for that, when start our service tax limit or either we are under service tax payer or not for that

  2. Vibhukant says:


    We are domain & hosting reseller proprietorship firm.
    Now our provider “Directi Web Technology Pvt. Ltd. which is an Indian entity” will start
    charging Service Tax of 15% to us.

    And we are already charging 15% Service Tax from our client.
    Can we get any relaxation or reverse charge benefit from Government?


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