OIDAR in India: 2023 and Beyond
In today’s technology-driven era, Online Information Database Access and Retrieval (OIDAR) services have become increasingly significant, shaping the way information is accessed and shared globally. From streaming platforms to Unified Payments Interfaces and online marketplaces, we have become heavily reliant on these services, utilizing them on a daily basis. With the rapid advancement of technology and the affordability of internet access, these services are poised for substantial growth. Realizing the vast revenue potential in this space, the Indian government has taken progressive steps to broaden the scope of OIDAR and bring these services within the ambit of GST. This article will explore OIDAR in India. Particularly its significance, recent regulatory changes and taxability within the GST framework. We will share valuable insights to help navigate the complexities of OIDAR GST taxation to help global businesses stay compliant in this dynamic sector.
What is OIDAR in India?
OIDAR refers to a category of services provided digitally through the internet and received by the recipient without any physical interaction with the service provider. These services can be provided online, even from a remote location outside of India, to customers located within India. For instance, purchasing and downloading an ebook online or utilizing an online platform for cloud storage services would fall under the purview of OIDAR services subject to GST regulations.
It is essential to note that while OIDAR is an India specific term, the same services are referred to as Electronically Supplied Services in the EU and Digitally Supplied Services in other parts of the world. Various economies, including India, the EU, and other parts of the world, have realized the significant impact of digital services on their respective markets and tax systems. While there might be some differences in how digital services are categorized and taxed in various jurisdictions, the underlying goal is often similar - to ensure that digital services are appropriately taxed and that tax compliance is maintained.
Moving on to taxing OIDAR. Why is OIDAR different from other services?
Due to the nature of the services, OIDAR can be provided online by an overseas service provider, outside of the taxable territory, and escape being taxed in India. However, a similar service rendered by a local service provider within India to customers in the country would be taxable. This creates an unfair advantage for the overseas service provider - their services are not subject to tax. Further, as the service provider is located overseas and may not have a presence in India, it would be difficult for the government to ensure GST compliance. To create a level playing field amongst providers and facilitate collection, the government introduced specific OIDAR regulations under the GST law in 2001.Owing to the rapid growth of digital technology and increasing prominence of online transactions fuelled by the Digital India campaign, significant changes have been introduced to the concept of OIDAR in the 2023-2024 budget. 👉Refer to the Fonoa country guide that explains GST on digital services in detail.
What are the Recent Changes in OIDAR Regulations?
The Union Budget 2023-2024 introduced significant changes to the scope of OIDAR services, broadening its ambit and putting any interpretational ambiguities on its applicability to rest. These amendments are effective from April 1st, 2023.
- Modified the OIDAR definition by removing the “essentially automated and minimal human intervention” requirement
As part of these amendments, the government has modified the definition of OIDAR by removing the term ‘essentially automated and involving minimal human intervention’. The GST law definition now reads (the
strikethrough reflects the Union Budget 2023 amendment):
In effect, services that involve human interactions and are delivered over the internet or online medium would still qualify as OIDAR services. With this amendment, one could reasonably conclude that any service delivered over the Internet or electronic network is an OIDAR service. This is a mammoth change and brings within its ambit several additional services, subjecting them to GST. One classic example of such service is educational institution’s online programs. These programs were previously considered outside the OIDAR ambit because they involved regular human interactions. With the amendment these services should qualify as OIDAR and are thus subject to GST.
2. Simplified the definition of a Non-taxable Online Recipient
Alongside the ODAIR definition modification, the Government simultaneously simplified the definition of a Non-taxable Online Recipient (NTOR). The status of the recipient is taken into account when determining tax treatment of an OIDAR transaction, and for this reason, must be clearly defined.
Prior definition: “Non-taxable online recipient” means any Government, local authority, governmental authority, an individual or any other person not registered and receiving OIDAR services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.
Amended definition: “Non-taxable online recipient” means any unregistered person receiving OIDAR services located in a taxable territory.
Let us consider the scenarios below to understand this revision and its impact on ODAIR transactions.
Scenario I: The online recipient is registered in India.
In this case, if a registered taxpayer in India receives OIDAR services from a service provider located outside India, the service becomes taxable under the reverse charge mechanism i.e the registered recipient assumes tax liability and is responsible for compliance with applicable GST regulations.
Scenario II: The online recipient is not registered in India.
In this case, when an unregistered person, including a non-resident individual or foreign entity, receives OIDAR services in India, the responsibility to pay GST falls upon the non-resident service provider. To comply with GST regulations, the service provider must either register under the Goods and Services Tax (GST) Act or appoint an agent to comply with the applicable GST regulations.Simplifying the definition of a Non-taxable Online Recipient brings clarity by precisely defining the category as any unregistered person, thereby reducing interpretational disputes surrounding the taxability of OIDAR services.
What are the key differences between the prior OIDAR regime and the newly amended framework?
The amended OIDAR framework brings about a substantial overhaul when compared to the previous framework. The key differences are outlined below:
|Limited to fully automated services with minimal human involvement
|Expanded to include services with both human interactions and online delivery
|Some overseas service providers evaded GST due to ambiguity in the definition of OIDAR
|With better clarity and widened scope, several overseas service providers fall within the tax net
|Resolving Interpretational Challenges
|Faced interpretational issues, particularly concerning whether certain services fell within the purview of taxability
|Amended and simplified framework provides more clarity for both service providers and recipients along with their taxability
|Non-taxable online recipients (NTOR)
|Included Government, local authority, individuals, and others not registered for non-commercial purposes
|Simplified to include "unregistered person" as NTOR
Now that you are familiar with OIDAR services and the detailed regulations surrounding these transactions, let’s test your understanding!
Does your service qualify as an OIDAR service? Let's find out!
RRR Inc, located in the USA, offers online gaming services to unregistered customers in India. Will these services qualify as OIDAR?
Yes, providing online gaming services to customers located in India falls within the scope of OIDAR services. As per the definition, OIDAR includes online supplies of digital content, which encompasses online gaming services. The onus of GST compliance shall be on RRR Inc and RRR Inc will either have to register for GST in India or appoint an agent / intermediary to perform GST compliance services on their behalf.
PK Inc, based in NY, provides advertising services to clients located in India. Does this qualify as an OIDAR service?
Yes, PK Inc rendering advertising services to clients located in India using the internet is considered as an OIDAR service. Advertising on the Internet is explicitly mentioned in the definition of OIDAR services. The onus of GST compliance shall be on the service recipients if they are registered under GST. In case they are not registered, the onus shall be on the overseas service provider.
DON PTE Limited offers e-book rentals to customers globally, including those in India. Is this considered an OIDAR service?
Yes, offering e-book rentals to customers globally, including those in India, qualifies as an OIDAR service. The provision of e-books through telecommunication networks or the Internet is explicitly mentioned in the definition of OIDAR. Similar to example 2, the onus of GST compliance shall be on the service recipients if they are registered. In case they are not registered, the onus shall be on the overseas service provider.
Example 4: ABC PTE Limited provides online music streaming services exclusively to customers located in India. Is this service classified as OIDAR?
Yes, providing online music streaming services exclusively to customers in India falls within the scope of OIDAR services. Online supplies of digital content, such as music streaming, are explicitly mentioned in the OIDAR definition. The onus of GST compliance will be similar to example 2 and 3.
Example 5: XYZ Professional Institute located in Singapore provides online and residential diploma courses worldwide including India. Can these services be classified as OIDAR?
Yes, in the amended OIDAR framework, educational institutions providing online as well as residential courses which require human interaction fall in scope. The onus of GST compliance will be similar to example 2 and 3.
💡 Take a pause and count how much you scored above! And then, let us dive into the crucial aspect of compliance.
What are the compliance obligations under OIDAR?
Under OIDAR regulations, there are specific compliance obligations that entities providing OIDAR services must adhere to. Companies should be required to register, collect and remit tax on qualifying services.
GST Registration obligation
The key compliance requirement is the mandatory GST registration in India, regardless of the entity's aggregate turnover. Unlike other services, there is no threshold criteria for OIDAR registration, and all service providers must register under the GST Act. The GST registration procedures depends on whether the OIDAR service provider is located in India or outside of India. Both scenarios are detailed below.
Scenario 1: GST Registration for OIDAR Service Providers Located in India
Service providers with a place of business in India can obtain GST Registration through the normal method, applying through the GST common portal.
Scenario 2: GST Registration for OIDAR Service Providers Located Outside India
All OIDAR service providers supplying services to residents in India and not located in India must comply with GST regulations. Any overseas service provider supplying OIDAR services from a place outside India to a recipient in India should obtain simplified GST registration by filing GST REG-10. The overseas service provider has the option to either obtain GST registration or appoint an agent on its behalf to obtain the GST registration and discharge its compliance obligations.
Tax collection and remittance obligations
The liability for tax depends on a number of factors, including the location of the service provider and the location of the recipient. Each OIDAR service scenario has been detailed below.
|Location of Service Provider
|Location of Service receiver
|Person responsible for GST payment
|GST Liability type
|Service Provider in India
|Service Receiver in India (registered)
|Forward charge* (Tax shall be borne by the service provider)
|18%; For intra state: CGST and SGST @ 9% each and For inter state; IGST @ 18%
|Service Provider outside India
|Service Receiver in India (registered)
|Service Receiver (Taxable person in India)
|Reverse charge** (Tax shall be borne by the service receiver)
|IGST @ 18%
|Service Provider outside India to Non-taxable person in India
|Service Receiver in India (non-registered)
|Service Provider (Located outside India)
|Forward charge* The service provider or the appointed agent
|IGST @ 18%
* Forward charge: Under this mechanism, the supplier/service provider is responsible for paying the tax to the government.
**Reverse charge: Under this mechanism, the recipient/service receiver assumes the tax payment responsibility rather than the seller.
As the digital landscape continues to evolve, it is crucial for businesses to stay updated and compliant with OIDAR regulations. By understanding the coverage, qualifications, and compliance requirements, businesses can navigate the OIDAR landscape effectively and contribute to the growth of the digital economy in India.
- Indirect Tax for Businesses in India
- E-invoicing & Digital Reporting in India
- Indirect Tax on Digital Services in India
How can Fonoa help?
Fonoa provides a comprehensive solution for global indirect tax compliance, including in India. With Fonoa, you can streamline and manage GST compliance worldwide through a single, user-friendly platform. To facilitate the efforts needed to compute GST, Fonoa developed the Fonoa tax engine. The Fonoa tax engine automatically determines the correct GST treatment for sales transactions in over 140 countries. After you provide the minimal necessary transaction data input, the tax engine will instantly determine: if the transaction is taxable, what the applicable tax rate should be, and the tax amount you need to charge for that transaction. All while taking into account whether the seller exceeded the relevant GST threshold in the buyer's country and what is the product/service being transacted. Fonoa provides out-of-the-box coverage for 140 countries. Rates and rules are monitored and updated promptly by Fonoa so that you can focus on other value-add activities. Easy to integrate with and built for high performance.We are aware that new regulations have a substantial impact on how businesses operate. That’s why we built Fonoa e-invoicing, a solution that automatically reports sales transactions to tax authorities around the world.
By leveraging Fonoa's platform, you can efficiently manage your global indirect tax compliance, simplify processes, minimize errors, and gain valuable insights into your compliance activities.
Contact us for more information.