This article provides a detailed understanding of Online Information and Database Access or Retrieval (OIDAR) services and the specific rules governing their place of supply under the Goods and Services Tax (GST) regime. It includes insights into updates from Budget 2023 related to OIDAR definitions, which are pending official notification.

What are OIDAR Services?

For a service to be categorized as OIDAR, it must satisfy two fundamental conditions. Firstly, its provision must inherently rely on the internet for delivery. Secondly, the service cannot be rendered without the indispensable involvement of information technology. (Note: A proposed change in Budget 2023, awaiting CBIC notification, aims to remove the phrase 'essentially automated involving minimal human intervention and' from this definition.) Typical examples of OIDAR services include:

• Internet advertising
• Cloud computing services (e.g., Google Drive)
• Supplying e-books, movies, music, software, and other intangible content digitally via the internet (e.g., Hotstar, Amazon Prime Video)
• Providing data or information in electronic format through a computer network, whether retrievable or not
• Online gaming platforms (e.g., Steam)

It is crucial to understand that merely using the internet for communication or to facilitate a service does not automatically qualify it as an OIDAR service. Services that do not fall under the OIDAR category include:

• Supply of physical goods where only the order and processing are electronic
• Delivery of physical books, newsletters, newspapers, or journals
• Advisory services by professionals like lawyers or financial consultants conducted via email
• Booking services or tickets for events, hotel accommodations, or car rentals
• Educational or professional courses delivered online by a live teacher
• Offline physical repair services for computer equipment
• Advertising services in traditional media like newspapers, posters, and television

Applicability of GST for OIDAR Services

The taxability of OIDAR services under GST depends on the location of both the service supplier and the recipient:

Who Registers and Pays GST for OIDAR Services When the Supplier is Overseas?

When OIDAR services are imported by non-taxable recipients in India, the supplier located outside India is responsible for the tax payment. These overseas service providers (or their designated intermediaries) are required to obtain a single registration under a Simplified Registration Scheme to remit Integrated GST (IGST). This can be fulfilled either by direct registration of the foreign entity or by appointing an authorized person in India to handle the GST obligations. (It should be noted that Budget 2023 has redefined 'non-taxable online recipient' to include any unregistered person receiving OIDAR services within India's taxable territory, encompassing TDS deductors registered under Section 51 of the CGST Act. These definitional changes are currently awaiting official notification from the CBIC.)

Does Reverse Charge Mechanism Apply to OIDAR Services?

The Reverse Charge Mechanism (RCM) for OIDAR services applies exclusively when the recipient is a GST-registered taxable person. If the recipient is not registered under GST, they are not liable to pay IGST under RCM for these services.

Why OIDAR Services Have Unique GST Treatment

OIDAR services are accorded distinct treatment under GST primarily due to their characteristic nature of being supplied online from remote, often international, locations. If similar services provided by an Indian supplier to Indian recipients are taxable, and those received by a registered Indian entity from an overseas supplier are subject to reverse charge, then exempting overseas suppliers for non-taxable recipients would create an inequitable tax advantage. To ensure fair competition and address compliance complexities arising from foreign service providers without a physical presence in India, the government has established a simplified registration framework for such overseas entities.

Determining the Place of Supply for OIDAR Services

General Rule for Place of Supply

For the supply of online information and database access or retrieval services, the place of supply is consistently determined as the location of the service recipient.

Criteria for Determining Recipient's Location

To establish whether a service recipient is located within India's taxable territory, at least two of the following seven conditions must be satisfied:

• The address submitted by the recipient through the internet is located in India.
• The credit card, debit card, or any other stored value card utilized for payment by the recipient was issued in India.
• The billing address associated with the service recipient is in India.
• The Internet Protocol (IP) address of the device used by the recipient is located in India.
• The bank account used by the recipient for payment is maintained in India.
• The country code of the Subscriber Identity Module (SIM) card used by the recipient is that of India.
• The location of the fixed landline through which the service is received by the recipient is in India.

The government retains the authority to notify specific services or circumstances where the place of supply shall be the actual place of effective use and enjoyment of a service. This power is intended to prevent instances of double taxation or non-taxation of services and ensure the uniform application of GST rules.

Special Provisions for Overseas Providers and Non-Taxable Indian Recipients

This scenario is quite prevalent in India. For instance, if a student in India subscribes to a US-based streaming service like Netflix, Netflix becomes obligated to register in India and pay IGST. (It is reiterated that Budget 2023's modified definition of 'non-taxable online recipient' – referring to an unregistered person within the taxable territory, including TDS deductors under Section 51 of the CGST Act – is awaiting official notification from the CBIC.)

Role of Intermediaries in OIDAR Service Supply

If an intermediary situated outside India facilitates the supply of OIDAR services from a service provider to a non-taxable online recipient, this intermediary is generally considered the recipient of such services. However, the intermediary will not be treated as the recipient if it satisfies the following specific conditions:

• The invoice issued by the intermediary clearly identifies both the specific service and the original supplier located in the non-taxable territory.
• The intermediary neither collects nor processes payment in any manner and holds no responsibility for the financial transaction between the non-taxable online recipient and the actual service supplier.
• The intermediary does not authorize the delivery of the service.
• The general terms and conditions governing the supply are established by the service provider, not by the intermediary.

We have an entire series of articles on place of supply-

• Place of supply of goods
• Place of supply of general services
• Place of supply for specific services
• Place of services related to immovable property
• Place of supply for transportation services
• Place of supply for telecommunication services
• Place of supply for banking services