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.
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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