Introduction
Services offered through information technology and an electronic network in India fall under the GST framework. These digital services possess a formal name – Online Information Database Access and Retrieval (OIDAR) services. The Central Board of Indirect Taxes and Customs (CBIC) has established a distinct classification of services transacted over the Internet. No physical interaction occurs here between the service provider and the recipient. Since the services are mostly remote, the providers outside India may have an undue advantage.
Therefore, to widen the scope of taxation and ensure fair practices, certain rules were framed for OIDAR service providers. Find below an in-depth discussion on GST on remote services, place of supply for OIDAR, e-commerce taxation, provider compliance requirements, and more.
GST On Remote Services
Section 2(17) of the Integrated Goods and Services (IGST) Act, 2017 describes OIDAR as services provided through IT over the Internet or an electronic network. The supply of such services is usually automated and calls for minimal human interference.
Online supply of digital products and cloud computing are prime examples. Let’s look deeper at the variety of services under this category.
- Webhosting
- Website supply
- Online data warehousing
- Remote systems administration
- Supply of software
- Downloading images, music, films, games, etc
- Online newspapers and journals
- Advertisements on a web page
The existing GST rate for selling digital products and services within this category is 18%. The method of GST imposition depends highly on the supplier’s location, whether within India or outside.
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Both Service Provider And Recipient Are In India
Where both the service provider and the recipient operate within India, GST remains consistent for both OIDAR and non-OIDAR digital products and services.
GST will be imposed through the standard procedure at 18%. Specifically, the service provider must be registered in India and collect GST from the service recipient at 18%.
Following the collection of GST from the service recipient, the service provider must deposit this GST amount with the government.
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When Service Provider Is Outside India And Recipient Is In India
When the provider is outside India, the GST rate is applied based on whether the services are OIDAR or Non-OIDAR.
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For Non-OIDAR Products and Services
GST for non-OIDAR products and services will be determined based on whether the service recipient is a registered business or a non-registered individual.
For Non-OIDAR products and services, where the Service Supplier operates outside India and the recipient is located within India, GST will be imposed through the Reverse Charge Mechanism. In this case, the supplier is exempt from the obligation to register in India and is not required to make payments. The responsibility for the GST deposit with the government here rests upon the recipient situated in India.
When the supplier offers Non-OIDAR Services to a non-business entity, there will be no imposition of GST.
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For OIDAR Products And Services
For OIDAR products and services involving a supplier outside India and a recipient within India, the place of supply is India. Indian GST will be applicable for such a transaction.
If the recipient is a registered business, they are liable to taxation under RCM or reverse charge mechanism.
When the recipient is not enlisted under the GST, it becomes the receiver’s duty to gather the GST from the service recipient and submit the collected GST to the government.
If a service provider possesses an establishment in India acting on behalf of the foreign supplier within the taxable jurisdiction, said representative must undergo registration and pay Integrated GST on the supplier’s behalf.
If the international supplier lacks a physical presence or fails to appoint a representative for any purpose within the taxable jurisdiction, they must designate an individual in India responsible for GST payment.
When an intermediary situated outside India aids in the provision of such services, they are obligated to register for GST in India under all circumstances. Exemptions are there for specific scenarios only.
Also Read: OIDAR Services Under GST: Understanding Tax Implication And Compliance Guidelines
Place Of Supply For Online Services
| Supply | Receiver | Place Of Supply(PoS) |
| Supplying online information and database access or retrieval services | Any individual | Service recipient’s location |
The recipient shall be considered situated in the taxable jurisdiction (specifically, within India) if at least two of the following conditions are met.
- Address location offered by the recipient through the Internet within India
- The billing address of the service recipient is in India
- Debit or credit that the recipient utilizes to make payments is issued in India
- If the IP address of the recipient’s device is in India
- The recipient’s bank account utilized for payments is maintained in India
- If the recipient’s identity card’s country code is in India
- If the recipient’s fixed landline location through which the service is obtained is in India
In instances where the provider of the service is outside India and is a non-taxpayer in India –
| Supply | Service Provider | Receiver | Who Will Pay IGST? |
| Supplying online information and database access or retrieval services | Any individual located in a non-taxable territory | Online recipient is also non-taxable | Service supplier located in a non-taxable territory |
Also Read: Place Of Supply And E-Commerce Transactions: Online Sales And Delivery
Digital Downloads And Place Of Supply
The unique aspect of OIDAR services, including digital downloads, lies in their provision through online means from a distant location beyond the borders of India.
If a similar service is offered by an Indian service provider originating from India and targeted towards recipients within the country, such a service would be subject to taxation. If a registered entity in India avails of these services, the Goods and Services Tax (GST) becomes payable under the reverse charge mechanism.
This scenario creates an uneven tax advantage for overseas suppliers of OIDAR services when their offerings are excluded from the tax framework. The challenge arises because these service providers are situated outside India and may lack a physical presence in the country. To address this, the government has introduced a simplified registration scheme for service providers outside India.
Cloud Computing And GST
The GST implementation significantly impacted various sectors in India, including the digital landscape. A few implications of GST on cloud computing are –
- Cloud services like PaaS, IaaS, or SaaS were also taxed at 18% GST. It leads to an increase in operational expenses for companies relying heavily on these technologies.
- The reverse charge mechanism came into the picture for cross-border service providers. It makes compliance further challenging.
- The presence of multiple billing models like pay-as-you-go or subscription-based ones added more challenges for service providers.
- For new entrants in the market, GST compliance offered a competitive edge.
Taxation Of E-Commerce Services
Numerous provisions within the Income Tax and GST frameworks significantly impact E-Commerce transactions. The government is actively incorporating new sections in both Direct and Indirect Tax systems to curb non-taxation in transactions and prevent the exploitation of tax benefits.
In the absence of specific regulations for E-Commerce transactions in the past, small-scale sellers engaged in the sale of goods or provision of services through E-Commerce Operators outside the purview of taxation. This leads to widespread tax avoidance.
Besides, Non-Resident E-Commerce operators could generate profits in India without fulfilling tax obligations. The government has implemented specific Income Tax and GST provisions to counter these challenges.
- Under the Income Tax Act, e-commerce platforms must withhold a 1% TDS on the total sales or services or both. This deduction should occur either at the point of crediting the sale of goods, services, or both to the e-commerce participant’s account or when making a payment to the e-commerce participant through any other method.
- Under the GST Act, each digital commerce operator must gather a sum determined at a rate not surpassing one percent, as specified by the Government based on the Council’s recommendations. It must be based on the net value of taxable transactions conducted by other suppliers when the consideration for such transactions is to be collected by the operator.
Also Read: Navigating Cross-Border E-Commerce Challenges: A Comprehensive Guide
Compliance Requirements For Online Service Providers
- CBIC has recently implemented a streamlined registration framework for OIDAR service providers or intermediaries. This registration process is facilitated through the utilization of Form GST REG-10. Interested suppliers can initiate registration by submitting the required documentation to the Principal Commissioner of Central Tax, Bengaluru (West). In cases where an overseas service provider has a designated representative in India, that representative holds the responsibility to register and fulfill tax obligations on behalf of the service provider.
- To maintain compliance, the overseas OIDAR service provider or its appointed representative must submit monthly returns using Form GSTR-5A. These returns must be filed no later than the twentieth day of the subsequent month.
- For OIDAR service providers in India, the filing of GST returns follows the standard protocol applicable to other service providers. It involves the submission of returns using Form GSTR-1 and Form GSTR-3B.
Conclusion
Determining the place of supply for remote and online services is pivotal in ensuring accurate taxation and compliance with GST regulations. The GST framework recognizes the unique nature of these services, where the location of the service recipient becomes a crucial factor in assessing tax liability.
By adhering to the prescribed guidelines for each service category, businesses can navigate the complexities of the place of supply rules, facilitating fair and transparent taxation in the digital era.
As technology continues to evolve, it remains imperative for tax authorities and businesses alike to stay abreast of regulatory updates. It will effectively address the challenges associated with the dynamic landscape of remote and online services.
FAQs
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What Is The Place Of Supply In The Case Of Online Services?
The place of supply for online services is usually the recipient’s address, as per the supplier’s records.
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What Is The GST Rate For Cloud Computing Services?
The GST for cloud computing services is 18%.
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Is GST Applicable On Services Rendered Outside India?
Goods and services export is zero-rated under GST.
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Who Pays GST In E-Commerce?
GST applies to the supplier of goods in e-commerce.
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What Is The GST Turnover Limit For E-Commerce?
The turnover limit for e-commerce is 40 lakhs for goods and 20 lakhs for services.
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Can We Sell On Amazon Without GST?
You must provide your GST number to Amazon during the registration process. Providing this information may not be necessary if you deal in categories exempt from GST.
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Can OIDAR Claim ITC?
An OIDAR service provider cannot claim ITC against the returns filed periodically.
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Is GST Required To Sell Digital Products?
GST on the sale of digital goods and products is 18%.
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What Is The GST Rate For Digital Books?
The GST rate for e-books is the same as other digital products and services, i.e., 18%.
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Are UPI Transactions Taxable?
There is no tax for UPI transactions up to Rs. 50,000.
