Budget 2023–24 expands the scope of OIDAR with regard to GST on digital services

Over the last few years, players in advertising, media, education, and gaming have developed tremendously due to the availability of inexpensive and feature-rich cell phones and low-cost internet in rural India, spurred by the Digital India campaign. Considering the scale of the Indian market and rising demand in these industries, many foreign companies are investing in India and offering digital services to Indian customers.
In 2001, India implemented a tax on Online Information and Database Access Service (OIDAR) under the service tax framework. In 2016, several digital services were included to the tax. The GST law adopted service tax OIDAR provisions in July 2017.

OIDAR is a kind of internet-delivered services that recipients obtain without interacting with the provider. OIDAR can be delivered online to Indian customers from anywhere in the world.

The GST law defines OIDAR and identifies illustrative services such advertising, cloud services, e-books, movies, music, software, data/information retrieval, data storage, and online gaming. Any overseas supplier providing such services to an Indian customer must register under the GST law, either directly or through a representative, and comply periodically.

In the Union budget 2023-24, the Government removed the qualifier “primarily automated and involving minimal human participation” from the definition of OIDAR services to widen its scope. This means that OIDAR services can be rendered even if they include human interaction via online/internet methods.

It is crucial to note that numerous international educational institutions established online education programmes and deemed their services as not qualifying under the OIDAR category because they involved regular human interactions. However, the proposed OIDAR definition revision would oblige overseas service providers to reconsider their tax status.

The Union budget 2023-24 expanded the concept of “non-taxable online receiver” as well. If any unregistered person or person registered under Section 51 of the CGST Act in India obtains OIDAR services for any reason, the proposed change will make the overseas supplier (or intermediary) taxable.

Any overseas firm providing services to Indian customers must perform the following key tests to evaluate the taxability of the transactions in India under OIDAR:

OIDAR status.

Whether the entity is an Indian “Non-Resident Taxable Person”
Whether the services are provided to a non-GST registrant in India or a person registered merely for deducting tax under section 51 of the CGST Act.
Whether the international service provider directly serves Indian customers via its website.
Whether third-party apps provide digital services

Whether a third-party app service provider pays GST for the overseas entity.

Given the growing demand for OIDAR and convenience of delivery of technology-enabled services, the Government must address the sector’s problems, including the following, to optimise revenue to the exchequer and improve operations for service providers.

Create awareness – Lack of awareness of the OIDAR requirements forces GST authorities to demand tax, interest, and penalty from overseas suppliers. Several international suppliers received warnings of tax, interest, and penalty for non-compliance. Due to unanticipated tax expenditures, numerous multinational companies have stopped serving Indian customers. The Government would construct a proper mechanism and robust technology to monitor OIDAR supply upfront and raise awareness among abroad firms providing services to Indian clients. This will allow the overseas service provider to collect GST from customers instead of carrying GST and making the firm unprofitable.
Registration, tax, and compliance issues Allow international suppliers to register for GST with minimal documents and reduce monthly compliance to quarterly or half-yearly.
Tax amnesty – Amnesty or tax settlement for overseas OIDAR suppliers. Companies who had not collected taxes from end consumers due to a lack of awareness may be given a one-time dispute settlement option for the first years of GST to encourage them to pay up.

While “Ignorance of the law is no excuse,” the law is not meant to increase ignorant defaults or delay revenue! ‘There is a real law, right reason, suited to nature, known to all men, constant and eternal, which summons to duty by its precepts, deters from evil by its prohibition’.