Digital Services in India- Tax Applicability and Compliance ( September 29, 2023 )

In India, services mediated by information technology over the internet or an electronic network are taxed under the GST regime. These services are officially called Online Information Database Access and Retrieval (OIDAR) services. GST is levied at 18 percent on sale of digital services in India.

Effective October 1, 2023, India has decided to terminate the GST exemption for overseas OIDAR service providers. This change will result in companies like Facebook, Google, and various edtech platforms facing an integrated GST of up to 18 percent for services rendered to individuals and the government. Previously, OIDAR services by foreign companies to the Indian government, state authorities, or individuals for non-business purposes were exempt. However, this amendment mandates taxation for all OIDAR services, regardless of their use.

• As the digital economy proliferates, the taxation of services provided through the internet has caught the attention of regulators.
• These internet-based services are officially known as Online Information Database Access and Retrieval (OIDAR).
• They refer to the 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.
• In India, OIDAR services were first brought under the ambit of indirect taxation in 2001, under the service tax regime. In 2016, with the evolution of the digital space, the scope of these services was also broadened.
• In 2017, with the introduction of the unified Goods and Services Tax (GST) regime, OIDAR services are charged under GST.