OIDAR Services Under GST

With the evolution of the world into the digital era, there has been an increasing amount of services that are available over the internet. India's Goods and Services Tax (GST) framework acknowledged this change and has provisions for taxing digital services through Online Information and Database Access or Retrieval (OIDAR) services. This article will discuss recent legislative updates and the registration process of the OIDAR services under the ambit of GST.

Understanding OIDAR in GST

OIDAR Full Form in GST

This is the meaning of the acronym OIDAR, which stands for Online Information and Database Access or Retrieval. OIDAR service, according to GST law, means services whose delivery is mediated by information technology over the internet or an electronic network where the same cannot be performed without an IT-based system. This category includes:

Advertising on the internet
Providing cloud services
Applications, tools, and other digital content (including e-books, movies, and music) that are streamed or downloaded
Distribution of digital data or information over electronic networks
Online gaming services

Applicability of OIDAR Services Under GST

Under the GST framework, both domestic and foreign providers of OIDAR services have to pay GST when they supply services to recipients in India. If provided to an employee, the operation is taxable.

B2B Transactions: Where OIDAR services are provided to a registered business entity located in India, the recipient is required to pay GST under the reverse charge mechanism.
Business-to-Consumer (B2C) transactions: For the supply of services to unregistered persons or entities, the onus to collect/remit GST is on the foreign service provider.

Registration Process for OIDAR Services Under GST

Foreign OIDAR service providers who supply services to non-taxable recipients in India are required to obtain GST registration. The process for registering can be broken down into the following steps:

Open the official GST portal.
New Registration: Click on the registration and select New Registration.
Select Taxpayer type: On the Taxpayer type dropdown list, select Non-Resident Online Services Provider.
Enter Business Info: Fill in the business name, email, and contact information.
Verification: Enter the One-Time Password (OTP) you received via email and mobile.
Submit Application: Complete the other information and submit the documents needed.
After verification, the user receives a temporary reference number and then subsequently gets the GST Identification number (GSTIN).

Compliance Requirements for OIDAR Service Providers

The registered OIDAR service providers have certain compliance obligations, as given below:

OIDAR services GST Rate: OIDAR services are subject to a standard GST of 18%.
Filing of Return: The non-resident OIDAR service provider has to file GSTR-5A, a monthly return showing supplies made towards a non-taxable recipient in India.
Payment of Tax: GST is to be discharged either in cash or credit through government channels in INR.

Recent Amendments Impacting OIDAR Services

The definition of OIDAR services and their taxability was significantly modified by the Finance Act 2023 to the following effect:

Definition Expansion: By taking away the phrase "minimal human intervention" and the phrase "essentially automated", there is an expansion of the taxable service to any service that requires human involvement that is rendered through a digital medium.
Withdrawal of Tax Exemptions: With effect from October 1, 2023, the exemption from GST on OIDAR services provided by foreign companies to government entities and individuals for non-business purposes was withdrawn.

The nature of the recipient is not a factor in determining the applicability of 18% GST on all OIDAR services.

Challenges and Considerations for OIDAR Service Providers

1. Understanding Tax Obligations

Under Indian GST law, Foreign OIDAR service providers are required to clearly demarcate B2B vs. B2C transactions. This could result in an inaccurate tax filing, penalties and legal issues. This knowledge is critical to help ensure that proper tax liability is identified and maintained.

2. Compliance Costs

Installing GST-compliant systems for collecting taxes, filing returns, and remitting payments is resource-intensive for foreign service providers. These expenses include software upgrades, hiring tax consultants, and ongoing administrative costs. For smaller providers, these additional costs can eat into profitability, making GST compliance a costly and financially ruinous obligation.

3. Legal Representation

Foreign OIDAR service providers will likely need to have a local representative or intermediary in India to take over compliance, correspondence and responsibility in the eyes of Indian GST laws.

While ensuring your Indian operation holds up to scrutiny, you also want to have a trusted legal representative in India; this adds complexity and cost but probably is worth it for accountability and regulatory alignment.

4. Need for Expert Guidance

Due to the complex nature of India’s tax laws, foreign service providers need to take advice from GST experts with good knowledge of cross-border digital services.

Institutionalizing a sound compliance system minimizes mistakes, ensures timely filings, and mitigates penalty risks, allowing for seamless, consistent delivery of services to Indian consumers.

You can make your business related GST compliance easier with Swipe’s Easy GST Calculator.

Conclusion

The decision to bring OIDAR services under the ambit of GST in India was a significant step taken by the government to include such services within the purview of the tax structure.

Foreign suppliers providing digital services to Indian customers should remain aware of regulatory changes, compliance and registration requirements, and can consider seeking professional help to ensure managing GST compliance.

FAQs on OIDAR Services Under GST

1. What is the full form of OIDAR in GST?

Online Information and Database Access or Retrieval This definition describes digital services delivered via an electronic network, primarily the internet. You are educated on information at least until October 2023. These consist of streaming, cloud computing, digital advertising, and online content material delivery. The meaning of cross-border services is critical under the GST laws for the taxation of internet-based services.

2. Are foreign OIDAR service providers required to register under GST?

Yes, foreign OIDAR service providers have to register under GST if they provide digital services to unregistered businesses or individuals in India. The registration will ensure the collection of GST on such services, thus achieving tax parity between domestic and foreign service providers in the Indian digital economy.

3. What is the GST rate applicable to OIDAR services?

In India, OIDAR services are taxable at the rate of 18% GST. This type of digital service under an OIDAR category, provided by either a domestic or a foreign-based entity, can be taxed at this rate. This tax applies wherever the service is provided, thus ensuring equal competition and taxation even among digital platforms operating in India.

4. How do foreign OIDAR service providers pay GST in India?

As a result, foreign OIDAR service providers pay their GST in Indian Rupees through any approved banking channel. They are required to register on the GST portal, file GSTR-5A returns on a monthly basis and pay the full amount of applicable tax. The compliance ensures that foreign service providers follow India’s taxation structure while providing digital services.

5. Are OIDAR services provided to businesses taxed under GST?

GST is required to be paid by the recipient under the reverse charge mechanism if an OIDAR service is provided in India to a registered person (B2B). This makes the Indian business benefitting from the service liable to self-assess and pay the tax, as opposed to the foreign service provider collecting the tax and paying it.