Are foreign companies, having any fixed establishment in India and providing online and data access retrieval services, subject to indirect taxation in India?Will a single transaction for providing online and data access retrieval service in India be subject to indirect tax? Are the foreign companies providing online and data access retrieval services deemed to be taxed in India even if the service is provided to a person residing outside India? Do such foreign companies need to be registered in India for payment of indirect taxes? Are such foreign companies subject to interest and penal action in case of non-registration or compliances under indirect taxation in India?
These are some questions every foreign company or their legal/ accounting/ tax consultant or representative need to be aware of in order to avoid themselves or their clients from indirect tax implications in India.
Indirect tax on online information and database access retrieval services (OIDAR) was introduced in India in the year 2001 under service tax law. Initially, the scope of OIDAR services included online services, supply of software, supply of information in database, supply on music online via downloading, supply of distance learning, etc. In the year 2016, the scope of services widen to include electronic service. Further in the year 2017, Goods and Service Tax (GST) law in India continued to include OIDAR under its tax preview in India. Foremost step is to understand currently what is the scope of OIDAR services which are subject to GST in India.
What are the transactions subject to OIDAR services?
GST law in India provides “Online information and database access of retrieval services” as services whose
- delivery is mediated by information technology over the internet or an electronic network and
- the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and
- includes electronic services such as:–
- advertising on the internet; providing cloud services;
- provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet;
- providing data or information, retrievable or otherwise, to any person in electronic form through a computer network;
- online supplies of digital content (movies, television shows, music and the like);
- digital data storage; and
- online gaming.
Taxability on Foreign companies
Generally there are three scenarios prevailing under which foreign companies provide ODIAR services
Scenario 1:-Where service recipient in India is registered under GST
Scenario 2:- Where service recipient in India is not registered under GST
Scenario 3:- Where service recipient is not located in India
Scenario 1:-Where service recipient in India is registered under GST:- In such case service recipient registered under GST in India is labile to pay Integrated Goods and Service Tax (IGST) under reverse charge basis. In such case, foreign companies DO NOT have any legal obligation under GST law for registration/ payment of Indirect taxes and related compliances.
Scenario 2:- Where service recipient in India is not registered under GST:- One of the pertinent amendment brought in the year 2016 under erstwhile indirect tax law (i.e. service tax) which continued under GST regime also was to tax foreign companies providing OIDAR services in India to non GST registered persons and other designated persons i.e. Government, local authority, governmental authority, or an individual in relation to any purpose other than commerce, industry or any other business or profession provided in India. For instance, a student in India downloaded e-book from a foreign company service provider. In such case, foreign company is liable to pay IGST in India.
Further, even a single transaction would trigger liability to pay IGST on foreign companies. Thus, foreign companies in such scenario has legal obligation under GST law to compulsorily registered under GST for payment of IGST and do all related compliances relating to payment of IGST and filing of relevant returns. Further, in that case there is a special methodology prescribed by Government for their registration under GST and payment of taxes thereof in India.
It is to be noted that foreign companies were exempt from payment of Indirect tax and related registration and compliances in India under such scenario prior to amendment under Indirect tax law in India in the year 2016.
Scenario 3:- Where service recipient is not located in India:- Under such scenarios one of the moot question is - What will be the taxability under Indirect tax law in India if person receiving the OIDAR service from foreign company is not located in India. In that case also, foreign companies will be liable to pay IGST in India and do all related compliances if any TWO of the following non- contradictory conditions are satisfied, namely:
- the location of address presented by the recipient of services through internet is in India
- the credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in India
- the billing address of the recipient of services is in India
- the internet protocol address of the device used by the recipient of services is in India
- the bank of the recipient of services in which the account used for payment is maintained is in India
- the country code of the subscriber identity module card used by the recipient of services is of India
- the location of the fixed land line through which the service is received by the recipient is in India
Since the above amendments under Scenario 2 and 3 came into effect in the year 2016 and continued under GST regime w.e.f. July 2017, therefore foreign companies providing OIDAR service or their tax/ legal/ accounting consultants need vigilant checks on their transactions to determine whether same are deemed to be provided in India in above cases. Direct transaction in India where non GST registered service recipient is located in India will be easily identifiable. What would require immediate attention would be determining applicability of above two mentioned conditions. In that case foreign companies should prepare an internal checklist and controls to obtain such information.
Though there is no set technical procedure to identify these transactions by Indirect Tax Department in India due to voluminous transactions and unavailability of data due to recipient not registered under GST. However, the law in India provides taxability and compliances on foreign companies in above cases. In case transaction is identified, foreign companies will be subject to taxes, interest and penalties under India Law.
Special registration in India of Foreign OIDAR Service Provider:
GST law in India has prescribed a simplified procedure of registration wherein Foreign companies providing OIDAR services from a place outside India to a non-taxable online recipient shall, for payment of integrated tax, take a single registration in Form GST REG-10.
The supplier shall take registration at principal Commissioner of Central Tax, Bangalore West who has been the designated for grant registration in such cases.
In case there is a person in India representing such foreign supplier in India for any purpose, such person (i.e. representative in India) shall get registered and pay IGST on behalf of the foreign OIDAR service provider.
In case the foreign OIDAR service provider does not have a physical presence or does not have a representative for any purpose in India, he may appoint a person in India for the purpose of paying IGST and such person shall be liable for payment of such taxes.
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