Major companies like Facebook, X (formerly Twitter), Google, and various edtech firms, could soon be subjected to an integrated goods and services tax (IGST) of up to 18 per cent for services offered to both government entities and individuals in India, reported The Economic Times.
The report highlighted that Overseas Online Information and Database Access Retrieval (OIDAR) service providers, like the ones mentioned above, will face the additional IGST after it was proposed to end exemptions from October 1.
This change would encompass a wide range of overseas companies offering services such as advertising, cloud services, music, subscription-based services, online education, and information, irrespective of whether these services are used for personal or business purposes, according to a source quoted in the ET report.
Previously, services provided by overseas OIDAR providers located in non-taxable territories were exempt from tax when received by government bodies, government authorities, or individuals for non-business purposes. Taxation only applied to business-to-business (B2B) services.
OIDAR services are characterised as those delivered through IT over the internet, primarily automated, and requiring minimal human intervention. These services encompass online advertising, cloud services, e-books, streaming of media content, digital content sales, data storage, and online gaming.
In the 2023 Finance Act, the scope of taxation for OIDAR services was expanded, and the definition was revised to exclude the requirement for “minimal human intervention” in service delivery.
Additionally, the definition of ‘non-taxable online recipient’ was changed, now encompassing non-registered recipients under section 16 of the IGST Act, placing the responsibility for tax collection on service providers.
This notification aims to remove ambiguity arising from the changes introduced in the 2023 Finance Act, as it eliminates exemptions for individuals and government entities. OIDAR service providers will also be required to maintain a user database.
