The Goods and Services Tax (GST) authorities have sent notices to a bunch of foreign companies such as Facebook, Google, Netflix and Spotify, to ensure compliance with new GST regualtions.
- These notices were sent to around 70 digital companies in line with requirements for 18 percent Integrated GST (IGST).
Key points
- The new tax is effective as of October 1, 2023 irrespective of whether the services are for personal or business use.
- The government expects to collect around Rs 2,000 crore in the current financial year (FY2023-24) from foreign firms providing various digital services in India.
- Previously, only business-to-business services were subject to IGST, and there was no tax obligation for individuals and government entities acquiring non-business services from overseas Online Information Database Access and Retrieval (OIDAR) service providers outside of Indian jurisdiction.
- Overseas suppliers delivering services to Indian consumers must now undergo a simplified registration process under the GST law, either directly or through representatives in India, to ensure tax compliance.
- This involves paying an 18 percent IGST on a forward charge basis, where the service provider is responsible for collecting tax from the recipient and remitting it to the government.
- In the Union Budget 2023, the central government expanded the scope of OIDAR services, eliminating previous exemptions and removing the term “minimal human intervention.”
- Additionally, Section 16 of the IGST Act broadened the definition of a “non-taxable online recipient” to include non-registered recipients, thereby shifting the tax collection burden to service providers.
- Online gaming and advertising firms, along with smaller subscription-based players, are among the significant defaulters. The introduction of these new norms is aimed at ensuring compliance when overseas entities offer services to the Indian user base.
About OIDAR
- Online Information Database Access and Retrieval services (OIDAR) is a category of services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services.
- Example: Downloading of an e-book online for a payment would amount to receipt of OIDAR services by the consumer downloading the e-book and making payment.
- In cases where the supplier of such service is located outside India and the recipient is a business entity (registered person) located in India, the reverse charge mechanism would get triggered and the recipient in India who is a registered entity under GST will be liable to pay GST under reverse charge and undertake necessary compliances.
- If the supplier is located outside India and the recipient in India is an individual consumer, then the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services.
