Tax Implications and Compliance for OIDAR Services in GST
In the context of GST, OIDAR stands for Online Information Data Base Access and Retrieval Services; these services have distinct tax implications than other kinds of transactions. It only applies to the provision of services, and the primary distinction is that while the beneficiary is located in India, the service provider is not. These services, as their name implies, are supplied by the provider of services via the internet, and the recipient downloads them in India.
India has decided to end the GST exemption for foreign OIDAR service providers effective October 1, 2023. Due to this modification, businesses providing services to the government and individuals will have to pay an integrated GST of up to 18%, including Facebook, Google, and other edtech platforms. Foreign enterprises that provided OIDAR services to the Indian government, state agencies, or people for non-business purposes were previously exempt from this requirement. This modification, however, requires that all OIDAR services be taxable, regardless of how they are used.
What are OIDAR services?
OIDAR is defined as services whose delivery is mediated by information technology through the internet or an electronic network and whose nature renders their provision fundamentally automated needing minimal human participation (Section 2(17) of the Integrated Goods and Services (IGST) Act, 2017).
These comprise digital services including online advertising, cloud computing, online digital content distribution, etc. “Minimum human intervention” was once part of the OIDAR definition.
The Finance Act 2023, on the other hand, changed the definition and broadened the taxation scope for OIDAR services, removing the necessity for “minimal human intervention” in service delivery.
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Indicative List of OIDAR Services
Website supply, web-hosting, distance maintenance of programs and equipment:
It covers webpage hosting; remote systems administration; automated, online, and remote program maintenance; online data warehousing, which stores and retrieves specified data electronically; and online on-demand disk space supply.
Supply of software and updating thereof:
It involves accessing or downloading software (such as accounting and procurement programs and antivirus software) along with updates; downloading drivers, which are programs that interface computers with peripheral devices (like printers); installing firewalls and filters on websites automatically online; and using software to prevent banner ads from showing, also known as banner blockers.
Supply of images, text and information, and making available of databases:
It covers the following: using search engines and Internet directories; accessing or downloading desktop themes; downloading or accessing photographic or pictorial images or screensavers; subscribing to online newspapers and journals; the digital content of books and other electronic publications; the provision of advertising space, including banner ads on a website or web page.