Tax on sale of Digital Products & Services in India |GST on OIDAR|

With the growth of internet in the past few decades, a new digital industry has mushroomed wherein digital goods and digital services are sold over the internet. These digital transactions happen over the internet and the Indian Laws treat such transactions as OIDAR i.e. Online Information Database Access & Retrieval.

Before proceeding with the applicability of GST on OIDAR, it is first important to understand the meaning and scope of OIDAR.

What is OIDAR?

OIDAR i.e. Online Information Database Access and Retrieval is a category of service provided through the medium of internet without having physical interface with the supplier of such service.

The IGST Act defines OIDAR as “a service 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.”

Some examples of such services are:-

  1. Advertising on the Internet
  2. Providing Cloud Services
  3. Provision of e-books, movie, music, software and other intangibles through telecommunication network or internet.
  4. Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network.
  5. Online supplies of Digital Content (Movies, Television Shows, Music etc.)
  6. Digital Data Storage
  7. Online Gaming
  8. Other types of services which are automated and happen through Internet. More examples given at the end.

All services which are not covered under the definition of OIDAR Services would be considered as Non-OIDAR Services. The applicability of Indian GST is different for OIDAR and Non-OIDAR Services which has been explained below.

GST on sale of Digital Products & Services

The current rate of GST on sale of most digital products and services falling under this category is 18%. However, the manner of levy of GST would depend on whether the supplier is based in India or is based outside India.

Case I: Both Service Supplier and Service Recipient are in India (applicable for both OIDAR as well as Non-OIDAR Services)
In such cases where both the service supplier as well as the Service Recipient is in India, the applicability of GST would remain the same for both OIDAR as well as for Non-OIDAR Digital Products & Services.

In such cases, the GST would be levied in the normal manner @ 18% i.e. the Service Supplier should be registered in India and shall collect [email protected] 18% from the Service Recipient.

After collection of GST from the Service Recipient, this GST should be deposited with the Govt. This has been explained below with the help of an infographic below

GST-Online-Sales

The above method would be applicable for both for OIDAR Services as well as for Non-OIDAR Services.

The current rate of GST on sale of most digital products and services is 18%.

Case II: Service Supplier is outside India and Service Recipient is in India

If Service Supplier is outside India but the Service Recipient is in India, the applicability of GST would depend on whether it is OIDAR Service or Non-OIDAR Service.

1. Non-OIDAR Products & Services

In case of sale of Non-OIDAR Products and services, the levy of GST would depend on whether the Service Recipient is a registered business entity or is a consumer (i.e. a non-registered business entity). The manner of applicability of GST in both the cases is mentioned below:-

  • The service recipient is a Business entity

In such cases of Non-OIDAR Products & Services where the Service Supplier is outside India and the Service Recipient is in India, GST would be levied on Reverse Charge Mechanism.

In such cases, neither is the Service Supplier required to register in India nor is he required to pay GST in India.

In such cases, the complete liability for deposit of GST with the Govt would fall on the Service Recipient who is in India. There would be no liability of the Service Supplier who is based outside India to register in India or to pay GST in India.

GST-Digital-Products

  • The service recipient is not a business entity

In such cases wherein the supplier is providing Non-OIDAR Services to a Non-Business entity, No GST would be levied in this case.

2 OIDAR Products and Service

In case of OIDAR Products and Services where the Service Supplier is outside India and Service Recipient is in India, the place of supply would be India and Indian GST would be applicable on such transactions.

The manner of levy of GST on such transactions would depend on whether the Service Recipient is a Business or is a Consumer i.e. Non-Business.

  • Service Recipient is a Business entity registered under GST (i.e. B2B Service)

In such cases, the service recipient is liable to tax under the Reverse Charge Mechanism. It is the responsibility of the Service Recipient to pay GST to the Govt and not the liability of the Service Supplier to pay GST to the Govt.

The Reverse Charge Mechanism of GST has been explained below with the help of this infographic:-

GST-Digital-Products

  • Service Recipient is not registered under GST (i.e. B2C Service)

In such cases where the Service Recipient is not registered under GST, it would be the responsibility of the Service Receiver to collect GST from the service recipient and then deposit this GST with the Govt.

In such cases, the service provider would also be required to get registered in India under the GST Laws. Even if the person does not have any business establishment in India, he would be required to get registered in India under the GST Norms.

The supplier of such services shall take single GST Registration in India under the Simplified Registration Scheme in Form GST REG 10.

GST-Online-Sales

In case the service supplier has an entity in India representing such overseas supplier in the taxable territory for any purpose, such representative shall get registered and pay Integrated GST on behalf of the supplier.

In case the overseas supplier does not have physical presence or does not have a representative for any purpose in the taxable territory, he will have to appoint a person in India for the payment of GST.

If an intermediary located outside India arranges or facilitates the supply of such service he would also be required to get registered for GST in India in all circumstances except certain specified circumstances.

How to determine if the Service Recipient is a Business Entity or a Non-Business Entity

In case of OIDAR Digital Products and services sold from outside India, it is very important to know whether the Service Recipient is a considered as a business or is not considered as a business as the manner of levy of GST would depend on the type of consumer (as explained above).

If the service recipient is registered under the Indian GST Norms and he submits his GST Registration Number to the supplier – he would be considered as a Business and GST would be levied under the Reverse Charge Mechanism.

If the service recipient does not submit his GST Registration Number to the supplier – he would be considered as a Non-Business and in such cases, the service supplier would be required to obtain GST Registration in India and pay GST.

Therefore it is very important for the service supplier to ask the service recipient for his GST No. as non submission of this number will mandate the service supplier to register in India.

Almost all companies providing OIDAR Services have started asking their Indian users to start furnishing their GST Registration Number to the service supplier. Indian service recipients can submit their GST No.’s through the following links

  1. Facebook: https://www.facebook.com/business/help/1848545052064215?helpref=faq_content
  2. Amazon AWS: https://aws.amazon.com/premiumsupport/knowledge-center/add-indian-gst-id/
  3. Hostgator: http://manage.hostgator.in/kb/answer/2910
  4. Digital Ocean: https://www.digitalocean.com/help/pricing-and-billing/tax-help-india/
  5. Linkedin: https://www.linkedin.com/help/linkedin/answer/82153/india-goods-and-services-tax-gst-frequently-asked-questions?lang=en

Reason for Levy of GST on OIDAR Service Suppliers located outside India

If the service supplier is based outside India, taxes were not levied on him earlier. However, if the Service Supplier is in India – Taxes would be applicable on him. As a result of this, the service supplier not located in India had an unfair tax advantage as compared to a service supplier who was located in India.

To bring them at par, the govt has levied taxes on service suppliers located outside India. These taxes on OIDAR Services were levied under the Service Tax Regime w.e.f 1st Dec 2016 and have now also been levied under the GST Regime w.e.f 1st July 2017.

The Govt intends to continue the levy of GST on OIDAR Services supplied from outside India so as to provide a level playing field to service suppliers located in India.

Almost all companies providing such services like Facebook, Google, Hostgator etc are already following this rule and are paying taxes in India. If you are company located outside India providing OIDAR services to customers in India, it is advised that you should register for GST in India and start asking them about their GST Registration No. before accepting any payments. Non-compliance of the Indian Tax Laws would lead to strict consequences and severe penalties.

This law is in line with the recommendations made by the OECD regarding tax challenges of digital transactions in cross border transactions. Several other countries like member countries of European Union, Australia, Norway, Japan, South Korea, Switzerland, South Africa , Iceland, New Zealand, Russia and several other countries have already introduced this tax law and now this law is applicable in India as well.

How to determine if the Service Recipient is based in India

The person receiving OIDAR Service would be deemed to be located in India if any 2 of the following non-contradictory conditions are satisfied:-

  1. The location of address provided by the service recipient via the Internet is India.
  2. The Credit/ Debit/ any other card by which the service recipient settles the payment has been issued in India.
  3. The service recipient’s billing address is in India
  4. The service recipient’s bank in which the account is used for payment is maintained is in India
  5. The country code of the subscriber identity module (SIM) card used by the service recipient is in India
  6. The location of the service recipient’s fixed land line, through which the service is received by the person, is in India.

Test to check what can be/ cannot be classified as OIDAR Services

To determine if a particular services is an OIDAR Service or not, the following test can be applied:-

Service Whether the Provision of Service mediated by Technology over the Internet or an Electronic Network Whether it is automated and impossible to ensure in the absence of technology Is this an OIDAR Service?
PDF Document manually emailed by provider Yes No No
PDF Document automatically emailed by provider’s system Yes Yes Yes
PDF Document automatically downloaded from website Yes Yes Yes
Stock Photographs available for automatic download Yes Yes Yes
Online Course consisting of pre-recorded videos and downloadable PDF’s Yes Yes Yes
Online Course consisting of pre-recorded videos and downloadable PDF’s plus support from a live tutor Yes No No
Individually commissioned content sent in digital format i.e. photographs, reports, medical results etc Yes No No

Examples of OIDAR Services

The following are some of the examples of OIDAR Services. The following is only an indicative list of what would be considered as OIDAR Service. Some other services not mentioned below can also be classified as OIDAR Service based on the above mentioned test rule.

  1. Website supply, web-hosting, Distance Maintenance of Programmes and Equipment
    1. Website Hosting and Web-page Hosting
    2. Automated, online and distance maintenance of programmes
    3. Remote Systems Administration
    4. Online Data Warehousing where specific data is stored and retrieved electronically
    5. Online supply of on-demand disk space
  2. Supply of Service and updating thereof
    1. Accessing or downloading software (including procurement/ accountancy programmes and anti-virus software) plus updates
    2. Software to block Banner Ads, otherwise known as Ad Blockers
    3. Download Drivers, such as software that interfaces computers with peripheral equipment (such as printers)
    4. Online automated installation of filters on websites.
    5. Online automated installation of firewalls.
  3. Supply of Images, Text and Information and making available of Databases
    1. Accessing or downloading desktop themes
    2. Accessing or downloading photographic or pictorial images or screensavers
    3. Digitised Content of Books and other electronic publications
    4. Subscription to online newspapers and journals
    5. Weblogs and website statistics
    6. Online news, traffic information and weather reports
    7. Online information generated automatically by software from specific data input by the consumer, such as legal and financial data
    8. Provision of advertising space including banner ads on a website/ web page
    9. Use of Search Engines and Internet Directories
  4. Supply of music, film and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events
    1. Accessing or downloading of music on to computers and mobile phones.
    2. Accessing or downloading of jingles, excerpts, ringtones, or other sounds
    3. Accessing or downloading of films
    4. Downloading of Games on to Computers and Mobile Phones
    5. Accessing automated online games which are dependent on the Internet, or other similar electronic networks, where the players are geographically remote from one another.
  5. Supply of Distance Learning
    1. Automated Distance teaching dependent on the Internet or similar electronic network to function and the supply of which requires limited or no human intervention. These include virtual classrooms, except where the Internet or similar electronic network is used as a tool simply for communication between the teacher and the student.
    2. Workbooks completed by pupils online and marked automatically without human intervention.

Summary of applicability of GST on Digital Products

The following table summarises the levy of GST in all the above mentioned cases:-

Details of Recipient Indian Service Supplier Non-Indian Service Supplier
Non OIDAR Service
  • Recipient is Business
GST levied under Normal Mechanism i.e. Forward Charge. Service Supplier liable to pay tax. GST levied under Reverse Charge. Service Recipient liable to pay Tax.
  • Recipient is Non-Business
GST levied under Normal Mechanism i.e. Forward Charge. Service Supplier liable to pay tax. GST is not applicable.
OIDAR Service
  • Recipient is Business
GST levied under Normal Mechanism i.e. Forward Charge. Service Supplier liable to pay tax. GST levied under Reverse Charge. Service Recipient liable to pay Tax.
  • Recipient is Non-Business
GST levied under Normal Mechanism i.e. Forward Charge. Service Supplier liable to pay tax. GST levied under Normal Mechanism i.e. Forward Charge. Service Supplier liable to pay tax and register in India.

Have a Query – Talk to our Experts

In case you still have a query regarding the Tax on sale of Digital Products and Services in India, you can book a one-to-one telephonic appointment with our Tax Experts for Tax Advisory Service through the following link:-