Foreign OIDAR firms providing services to unregistered persons must register, pay GST in India from October 1

Effective October 1, foreign companies providing online services such as advertising, cloud services, music and information to non-GST-registered individuals in the country will have to pay goods and services tax. Consequently, the compliance burden for these service providers is also likely to increase significantly as they would have to register for GST purposes, remit taxes and file returns.

The move follows the Finance Act, 2023, which amended the Integrated GST Act to revise the definition of “non-taxable online recipient” to broaden the scope of Online Information and Database Access or Retrieval Services (OIDAR). A non-taxable online recipient would include any unregistered person receiving OIDAR services, regardless of the purpose, and located in India’s taxable territory.

Until now, services from OIDAR providers located abroad in non-taxable territory and received by central government, state government, government authorities or individuals for any purpose other than business was exempt. This exemption has been done away with from October 1.

Experts note that foreign OIDAR service providers like Facebook Inc, Twitter Inc, Google, and others earn substantial revenue from their Indian customer base. “The implementation of these changes in the Act raises concerns. For instance, Netflix, Inc, headquartered in the United States, has a significant user presence in India and is subject to IGST on sales to unregistered individuals, necessitating comprehensive record-keeping practices,” said a tax expert who did not wish to be named.

Saurabh Agarwal, Tax Partner, EY said that the changes made vide Finance Act 2023 (applicable from October 1, 2023) eliminates the requirement to consider whether the services are received for business purposes or not, making OIDAR services taxable for foreign service providers when provided to unregistered individuals in India (B2C), effective from October 1, 2023. However, when the Indian recipient of service is a GST registered person, the GST would need to be paid under reverse charge mechanism is majority of such cases. 

Ankur Gupta, Practice Leader - Indirect Tax at SW India said that with this amendment any service provided by OIDAR will be subject to GST and OIDAR service providers will have to get registered in India and pay GST on such services, adding that its impact may be felt on online education providers. An 18% GST would be levied.

“We have seen a surge in online education and due to the above exemption, there was no GST on such a service. The OIDAR service providers now need to analyse the impact as live streaming of events and classes might still continue to be exempted but providing access to the library or recorded videos would be subject to GST,” he said.

The GST Council in its 50th meeting on July 11 had also decided to amend Rule 64 and FORM GSTR-5A of CGST Rules, 2017 so that OIDAR service providers can provide the details of supplies made to registered persons in India in the return in FORM GSTR-5A. “This will help in tracking due payment of tax on reverse charge basis by such registered persons in India in respect of supplies received from OIDAR service providers,” an official release had said.

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