According to a report, foreign companies such as Facebook, Google, etc have received notices from the Goods and Services Tax (GST) authorities to ensure compliance with new GST regulations.
These notifications have been sent to approximately 70 digital companies, including advertising firms, Edtech companies, and online firms, to align with the requirements of an 18 per cent Integrated GST (IGST). The implementation of this new tax began on October 1, regardless of whether the services provided are for personal or business purposes, as per the report.
These regulatory changes are expected to result in a significant increase in tax collection for the government. According to a government official, they anticipated collecting around ₹2000 crore in the current financial year (FY2023-24), a substantial rise from the approximately ₹700 crore collected in the previous financial year (FY2022-23) from foreign firms offering various digital services in India.
Earlier, Integrated GST (IGST) was applicable only to business-to-business services, and there was no tax requirement for individuals and government entities when they obtained non-business services from overseas Online Information Database Access and Retrieval (OIDAR) service providers located outside of India’s jurisdiction.
Authorities Are Keeping an Eye on the Firms for Compliance
The official highlighted that they are closely monitoring companies that have been evading GST. While most major players in the subscription model have adhered to the regulations, there are exceptions in certain revenue streams. However, there are many mid to small-sized businesses that have not even registered for tax. The official also highlighted how crucial it is to adhere to the tax obligations and file returns timely under the OIDAR provisions.
Online advertising firms, as well as smaller subscription-based players, are among the major defaulters, said the official. When it comes to overseas entities providing services to the Indian user base, it is necessary to introduce new regulations to ensure compliance.
How Does the GST Compliance Procedure Work?
To ensure GST compliance, overseas suppliers offering services to Indian consumers are now required to undergo a simplified registration procedure under the GST law. They can do this directly or through representatives in India.
As part of this process, service providers need to pay an 18 percent Integrated GST (IGST) on a forward charge basis. It is their responsibility to collect the tax from the recipient and remit it to the government.
The Union Budget 2023 brought significant changes to the scope of Online Information Database Access and Retrieval (OIDAR) services. Previous exemptions were eliminated, and the term “minimal human intervention” was removed.
Additionally, as per the expanded definition of a “non-taxable online recipient” under Section 16 of the IGST Act, it includes non-registered recipients. As a result, the responsibility for tax collection now rests on the service providers, shifting the burden from the recipients.
Tax officials expect these new regulations to enhance compliance for various revenue streams from previously not covered services.
Define OIDAR?
There is a wide range of services delivered through online and internet platforms that fall under the OIDAR. This includes advertising, cloud services, e-books, movies, music, software, data and information retrieval services, data storage, and online services.
According to experts, foreign Online Information Database Access and Retrieval (OIDAR) service providers, including over-the-top platforms and social media companies, accumulate significant revenue from their Indian clientele. It is worth noting that online education services and advertising, which were previously excluded from the OIDAR services category, are now included in the revised definition.
Now, there are recommendations for OIDAR providers that it has to assess the implications of these changes carefully. While the live-streaming of events and classes may still be exempt from the GST, providing access to libraries or recorded videos will now be subject to taxation.
