The availability of less expensive cell phones with more features, along with the spread of inexpensive internet in rural India fueled by the Digital India campaign, has forced service providers to change the way services are delivered. As a result, over the past few years, the number of players in advertising, media, and education, has increased dramatically. Numerous foreign companies are investing in India and providing digital services to Indian consumers because of the size of the Indian market and the rising demand in these industries.
What is an OIDAR Service?
The collection of tax on Online Information and Database Access Retrieval Service (OIDAR) was launched in India in 2001 under the previous service tax regime, and the scope of services was expanded in 2016 to encompass various digital services. The laws regulating OIDAR were borrowed from the service tax law by the GST law in July 2017.
OIDAR is a group of services that are delivered digitally over the internet and are obtained by the recipient without having any physical contact with the service provider. OIDAR’s nature allows for its online delivery to a consumer in India from any area, no matter how far away.
What are the Services Provided in OIDAR?
The GST law provides a precise definition of OIDAR and identifies a number of representative services, including cloud services, e-books, software, data/information retrieval services, and data storage.
Any foreign provider that provides these services to a customer in India must register under the GST legislation using a streamlined approach, either directly or by appointing a representative there, and must comply with regular monthly reporting requirements.
Changes Suggested for OIDAR Services in Union Budget 2023-24
The word “basically automated and having minimum human interaction” was removed from the definition of OIDAR services by the government as part of the modifications suggested in the Union budget 2023–24. This would effectively imply that the services would qualify as OIDAR services even if they are not fully automated and include human interactions with online/internet platforms for the delivery of services.
It’s crucial to note that numerous foreign educational institutions have begun offering online degree programs but have determined that these services do not fall under the OIDAR category since they contain frequent human contacts. The proposed change to the definition of OIDAR services, however, would necessitate that these foreign service providers review their tax situation.
In addition to the change above, the concept of a “non-taxable online recipient” has been expanded in the Union Budget 2023–24. If any unregistered person or person registered under Section 51 of the CGST Act in India gets OIDAR services for whatever reason, the proposed modification would render OIDAR services taxable in the hands of the overseas supplier (or intermediary, as appropriate).
The following crucial tests must be carried out by any foreign business providing services to clients in India in order to assess if the transactions are taxable in India under the OIDAR provisions:
- Whether the transaction qualifies as an OIDAR
- Whether the entity qualifies as a ‘Non-Resident Taxable Person’ in India.
- Whether the services are provided to any person who is not a GST registrant in India or a person registered solely for deducting tax under section 51 of the CGST Act.
- Whether services are furnished via the overseas service provider directly through its website to end customers located in India.
- Whether the digital services are rendered via applications downloadable by the third-party app.
- Whether GST is released via a third-party app service provider on the grounds of the overseas entity.
Current Issues of the OIDAR Sector with Suggestions
In addition, the government must address a number of issues faced by the sector, such as the following, in order to maximize revenue to the exchequer and make operations easier for service providers. This is necessary given the growing demand for OIDAR and the ease with which such technology-enabled services can be delivered.
Building More Awareness
One major difficulty that forces the GST authorities to issue notices to collect tax, interest, and penalties from foreign suppliers is the lack of knowledge of the OIDAR provisions. To the dismay of a few international suppliers, notifications were sent out stating that tax, along with interest and a penalty, was being collected for non-compliance.
In certain cases, foreign companies have chosen to stop providing services to customers in India because of unforeseen tax expenses. To address this issue, the government must set up a proper mechanism and reliable technology to monitor the supply of OIDAR in advance and raise awareness among international service providers serving Indian clients. Instead of incurring GST and making the firm unprofitable, this would enable the foreign service provider to remit GST by properly collecting taxes from the clients.
GST Registration, Payment and Compliance Challenges
Permit the overseas suppliers to take a GST registration with the least possible documentation and transform the current monthly compliance needs to quarterly or half yearly for lessening the compliance load.
Amnesty Scheme for Tax Settlement
Furnish an amnesty or tax settlement process to overseas businesses involved in the OIDAR supply. The firms who do not have obtained the taxes through the end consumers because of zero awareness might get afforded a one-time dispute settlement option for the initial years of GST which motivates them to come clean with regard to previous dues.
During the ignorance of the law, there is no excuse, the intention of the law would not be to extend the ignorant defaults or lose/delay revenue. The same shall make us learn, there would be a true law, right cause, agreeable to nature, known to all men, constant and eternal that ask for the duty through its precepts, through its restrictions it deters from the evil.
