Explaining OIDAR Services and GST Compliance for Suppliers in India
Online Information Database Access and Retrieval (OIDAR) services refer to a category of services provided over the internet and received online by the recipient without any physical interface. Examples include downloading e-books, music, software etc.
The key aspects of OIDAR services are:
- Delivery is mediated by information technology over the internet or electronic networks
- Supply is automated and impossible to ensure without IT
- Minimal human intervention is required
Some examples of OIDAR services are:
- Downloading online content like e-books, music, movies, software
- Online data storage
- Online gaming
- Online advertising
- Web hosting services
- Accessing search engines and directories
- Online distance learning courses
Why OIDAR Services Need Special Treatment Under GST
OIDAR services can be provided remotely by suppliers located outside India. If left out of the GST net, overseas suppliers of such services would have an unfair advantage over domestic suppliers who have to pay GST.
Since overseas suppliers may not have local presence, compliance verification also becomes difficult. To address this, the government has introduced simplified registration and return filing for non-resident OIDAR suppliers.
Taxability of OIDAR Services Under GST
For any supply to be taxable under GST, place of supply must be in India.
If both supplier and recipient are in India, place of supply will be location of recipient. OIDAR transactions between two Indian entities will be taxed normally.
If supplier is overseas and recipient is a business in India, reverse charge mechanism applies. The recipient business has to pay GST under reverse charge and undertake necessary compliances.
If supplier is overseas and recipient is an individual consumer in India, place of supply is still India. But it is impractical to expect the individual to register and comply under GST just for an occasional transaction.
In such cases, the overseas supplier who is providing OIDAR services to a non-taxable online recipient in India will be liable to pay integrated GST.
Who is a Non-Taxable Online Recipient?
A non-taxable online recipient is any government entity, local authority, individual or any other person not registered under GST and receiving OIDAR services for non-business purposes.
Compliance Mechanism for Overseas OIDAR Suppliers
The overseas supplier of OIDAR services to non-taxable online recipients in India will be required to take a single registration under the Simplified Registration Scheme. Registration is granted by the Principal Commissioner of Central Tax, Bengaluru West.
If the overseas supplier has an India-based representative, the representative must register and pay integrated tax on behalf of the supplier.
If no local representative is present, the overseas supplier can appoint a person in India to pay integrated tax and comply with GST.
Simplified Registration Process
To obtain registration, the overseas OIDAR supplier has to submit:
- Application in Form GST REG-10
- Self-declaration that it does not have physical presence in India
- Mandatory details - name, email, mobile number
- Additional contact details (optional)
- Details of appointed India-based person (if applicable)
- Details of authorized signatory
On successful verification of application, registration certificate will be granted. The process is completely online and automated.
Return Filing Requirement
The overseas OIDAR supplier will have to file GSTR-5A on the 20th of every month, for the previous month's transactions.
The return has to show details of supplies made to non-taxable recipients along with tax liability. After filing, integrated tax has to be paid online based on liability declared in the return.
For the first eight months (July 2017 to December 2017), the government has extended the deadline for GSTR-5A filing till 31st January 2018.
It is important to note that GSTR-5A is only applicable for overseas OIDAR suppliers providing services to non-taxable recipients in India. OIDAR service providers located in India have to file the regular GSTR-1, GSTR-2, GSTR-3 returns.
Summimg up
The simplified compliance mechanism for non-resident OIDAR service suppliers provides an efficient way for the government to bring such services under the tax net.
At the same time, it does not burden overseas suppliers with extensive registration and filing requirements. With a single compliance process, overseas players can supply OIDAR services to Indian customers in a GST-compliant manner. This balances the need for tax coverage and ease of doing business.
Going forward, better clarification on what constitutes an OIDAR service may be required. As new digital business models emerge, the scope of OIDAR services will likely expand. The government has to take a consultative approach and issue guidance on OIDAR applicability for new age services. This will help both taxpayers and authorities avoid disputes regarding tax treatment of online services.