The curious case of Online Information Database Access and Retrieval (OIDAR) services from Goods and Services Tax perspective
The advent of COVID-19 has augmented the usage of internet and related services many folds in India. Presently, e-commerce has become an essential sector since it involves minimal physical presence/human intervention. Such businesses are involved in dynamic transactions which makes it more complex for the purpose of taxability.
OIDAR was brought under indirect tax net in India in 2001 under the service tax laws. Initially, the scope of OIDAR services included online services, supply of software, supply of information in database, supply on music online via downloading, supply of distance learning, etc. In 2016, the scope of OIDAR services was extended to include electronic services. Under GST, online services have been brought within the ambit of OIDAR services which encompasses services whose delivery is mediated by information technology or an electronic network and the nature of which renders their supply essentially automated, involving minimal human intervention and impossible to ensure in the absence of information technology. Thus, services provided through medium of internet and received by the recipient online without having any physical interface would qualify as OIDAR services.
Online services have definitely diluted the territorial boundaries and accordingly OIDAR services can be provided from anywhere – within or outside India to recipients in India. OIDAR service providers having place of business in India can obtain GST Registration through the normal method by applying as through the GST common portal.
Further simplified procedure for registration has been prescribed under GST laws, wherein overseas companies providing OIDAR services from a place outside India to a non-taxable online recipient can take a single registration for the purpose of payment of integrated goods and services tax (IGST). However, where the overseas supplier has a representative in India, such person (i.e. representative in India) shall obtain registration for compliances under the GST laws.
In case the foreign OIDAR service provider does not have a physical presence or does not have a representative for any purpose in India, he may appoint a person in India for the purpose of paying IGST and such person shall be liable for payment of such taxes.
Place of Supply
The reason being that under GST, place of supply for OIDAR services is the location of the recipient in terms of Section 13(12) of the IGST Act. The place of supply is deemed to be in the taxable territory if any of the two conditions are satisfied i.e. a) the location of the address presented by the recipient through internet is existing in the taxable territory b) the credit card or debit credit or store card or smart card or any other card that is used by the recipient to settle the payment is issued in the taxable territory c) the billing address of the recipient is in the taxable territory d) the IP address of the device used by the recipient of the services is in taxable territory e) the bank account of the recipient is in the taxable territory f) the country code of the subscriber identity module card used by the recipient is the taxable country g) the location of the fixed line used by the recipient is locate in the taxable territory.
Issues faced by overseas supplier of OIDAR services
Overseas supplier making B2C supply in India is required to pay Tax by appointing a person in India. Further, in case a person is representing such overseas supplier in India for any purpose, such representative in India required to get registered and pay Tax on behalf of the supplier. Also where the recipient in India is registered under GST and located in India, the recipient is liable to pay IGST under reverse charge mechanism (RCM). Thus, due to nature of service and absence of any robust mechanism, GST department often find it difficult to track GST on B2B OIDAR services supplied by foreign companies to registered persons in India.
For GST authorities, tracing of OIDAR income generated by foreign entities in India is a challenge which requires an enhanced tech enabled tracker to plug the revenue gap. Further there are many foreign online service providers who are unaware of GST implications on supply of OIDAR services to recipients in India and are caught unaware when investigation is carried on their activities in India resulting in huge demand, interest and penalty liability.
Thus, with increase in opportunities in such ever expanding and dynamic sector, there is a huge amount of revenue opportunity for the government. Accordingly, the Government must create awareness on the taxability of OIDAR services, especially where a foreign-service provider is involved. Further, the Government is required to amend the regulations so as to trace and verify the income generated by foreign companies in India in relation to OIDAR service.
All in all, GST is expected to be a mixed bag for electronic commerce, with the benefits outweighing the concerns.
Authors – Smita Singh, Partner – Indirect Tax, Customs & Trade and Kunal Batra, Associate