Under Section 14 of IGST Act, Online Information Data Base Access and Retrieval Services (OIDAR) services are defined as services provided through Information Technology (IT) over the internet or electronic network. It includes electronic services such as:
(i) advertising on the internet;
(ii) providing cloud services;
(iii) provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet;
(iv) providing data or information, retrievable or otherwise, to any person in electronic form through a computer network;
(v) online supplies of digital content (movies, television shows, music and the like);
(vi) digital data storage; and
(vii) online gaming;
Why OIDAR requires a separate treatment under GST
These services are provided remotely to Indian entities by foreign entities in India.
Further, services received by registered entities in India from foreign entities are liable to tax under reveres charge.
However, services received by non-registered entities were not monitored & regulated. To bring such transactions under the purview of GST, OIDAR services have been separately defined & taxed in GST.
Who are liable to register their services under OIDAR Services in GST
Foreign entities located outside India providing services to unregistered entities in India are liable to register under OIDAR services.
Foreign entity is liable to collect & pay IGST for supply of OIDAR services in India to unregistered entities.
How to apply for GST registration by foreign entities in India
Foreign entity providing OIDAR services shall take a single registration in Form GST REG-10. Foreign entity shall take registration at Principal Commissioner of Central Tax, Bengaluru West who has been the designated for grant registration in such cases.
In case the foreign entity does not have a physical presence or does not have a representative for any purpose in the taxable territory, he may appoint a person in India for the purpose of paying integrated tax and such person shall be liable for payment of such tax.
Filing of Returns by a person providing OIDAR service to a unregistered recipient in India
Foreign entity registered under OIDAR services shall file a return in Form GSTR-5A on or before 20 th of the month succeeding the calendar month. It is to be noted that GSTR-5A is required to be filed only by the service provider (or his representative) providing OIDAR services from outside India to a unregistered online recipient in India.
Tax treatment under Income Tax Act
Such foreign entity may be liable to Income tax in India if they have a business connection in India. Based on well-established principles, the following prerequisites must exist for a non-resident to have a ‘business connection’ in India:
- there must be some business activity carried on within India;
- there must be an element of continuity of business or business activities in India;
- Activity should contribute to the earning of income by the non-resident;
- a stray or isolated transaction is normally not regarded as a business connection.
The significant economic presence of a non-resident in India shall constitute “business connection” in India and ‘significant economic presence” for this purpose, shall mean-
a) Transaction in respect of any goods, services or property carried out by a non-resident with any person in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or
b) Systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed.
If non-resident has significant economic presence, then he may be liable to tax in India at applicable rates. Further. DTAA can also be analyzed to check the applicability of non-resident in India. Even if SEP thresholds are met, taxability depends on DTAA applicability
Conclusion
OIDAR provisions ensure that foreign digital service providers supplying services to Indian users are brought under India’s tax net. Under GST, foreign suppliers must pay IGST on services to unregistered recipients, while B2B supplies are generally taxed under reverse charge. They may also be liable under Income Tax if they create a business connection or Significant Economic Presence in India.
