As per a notification issued by the Central Board of Indirect Taxes and Customs these services will no longer be exempted from integrated goods and services Tax (IGST).
“This will cover overseas companies providing advertising, cloud services, music, subscriptions based service, online education and even information to all individuals and government irrespective of whether it is used for personal or business purpose,” a senior official told ET.
Currently 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 were exempt. Taxes were applicable only for business to business (B2B) services.
“This amendment specifies that the said exemption entry will no longer be applicable to OIDAR services starting from October 1, 2023. Consequently, OIDAR services provided to the aforementioned persons are now liable to taxation,” Saurabh Agarwal, Partner, EY India said.
OIDAR services are defined in law as services delivered through IT over the internet, which are essentially automated and “involve minimal human intervention.” These services include advertising on the internet, cloud services, sale of e-books, movies, music and software, supply of digital content, data storage and online gaming.
In the Finance Act 2023, the centre had widened the tax scope of OIDAR services and changed the definition of OIDAR services dropping the reference to “involving minimal human intervention” in service delivery.
The Finance Bill also changed the definition of ‘non-taxable online recipient’ bringing even nonregistered recipients in section 16 of the IGST Act, putting the onus on the services providers to collect tax.
The official cited above added that this notification will remove any ambiguity stemming from the amendment introduced in the Finance Act 2023 as individuals and government entities were exempted. They will also have to keep a database of users.
While some large companies were already prepared for the compliance burden, experts say that this may increase compliance for smaller companies and impact many edtech and subscription-based service providers.
‘Due to removal of the term ‘involving minimal human intervention,’ even services which may have human intervention may get covered when provided by an overseas platform,” Pratik Jain, Partner at PWC said.
