OIDAR Compliance in India: GST Implications for Overseas Digital Service Providers
India's GST framework casts a fairly wide net over overseas businesses supplying digital services to customers in India. A foreign business does not necessarily need an office, subsidiary, employees or other physical presence in India before Indian GST obligations arise.
Under the provisions governing Online Information and Database Access or Retrieval ("OIDAR") services, an overseas supplier providing specified digital services to unregistered recipients in India may be required to obtain a GST registration, charge and pay IGST and undertake periodic compliance in India.
The amendments introduced in 2023 widened the scope of these provisions considerably. Consequently, overseas SaaS businesses, digital platforms, online education providers and other technology businesses that may historically have concluded that their services fell outside OIDAR should revisit that position.
This article explains the framework and, more importantly, some of the practical questions overseas businesses should consider when determining their Indian GST exposure.
What are OIDAR services?
Section 2(17) of the Integrated Goods and Services Tax Act, 2017 ("IGST Act") defines OIDAR services broadly as services whose delivery is mediated by information technology over the internet or an electronic network and which cannot be provided without information technology.
The definition specifically includes several categories of digital services, including:
advertising on the internet;
cloud services;
provision of e-books, movies, music, software and other digital content;
provision of data or information in electronic form;
online gaming; and
digital supply of distance teaching.
Website hosting, software delivered over the internet, cloud storage and several other electronically delivered services may also fall within the definition.
The terminology can sometimes make OIDAR appear narrower than it actually is. In practice, the provisions can potentially apply to a wide range of overseas technology and digital-service businesses supplying customers in India.
The correct analysis therefore needs to start with the nature of the service actually being supplied, rather than merely how the business describes itself.
The 2023 amendment significantly widened the OIDAR framework
Historically, the definition of OIDAR contained an important qualification: the service had to be essentially automated and involve minimal human intervention.
The Finance Act, 2023 removed this requirement with effect from 1 October 2023.
This is a significant change.
A business can no longer assume that a digitally delivered service falls outside OIDAR merely because employees, consultants, instructors or other personnel are involved in providing the service.
This is particularly relevant for businesses providing hybrid services—for example, technology platforms accompanied by support, online learning involving instructors, or digital products involving some degree of human interaction.
The definition of a "non-taxable online recipient" ("NTOR") was also amended. As a result, overseas businesses relying upon an analysis undertaken before October 2023 should consider reassessing their position under the amended provisions.
When does an overseas supplier need to register?
Broadly, the OIDAR provisions become relevant where:
1. The supplier is located outside India;
2. OIDAR services are supplied to a recipient located in India; and
3. The Indian recipient falls within the prescribed category of a non-taxable online recipient.
Where these conditions are satisfied, the overseas supplier may itself become responsible for Indian GST.
Importantly, the ordinary turnover thresholds applicable to many domestic businesses should not be assumed to protect a foreign OIDAR supplier. The registration provisions applicable to OIDAR suppliers operate differently.
This can create a disproportionate compliance issue for overseas businesses having relatively small Indian B2C or unregistered-customer revenues.
B2B and B2C supplies need to be examined separately
One of the most important practical distinctions is between supplies to GST-registered businesses and supplies to persons who are not registered under GST.
Consider an overseas SaaS company earning USD 500,000 annually from customers in India.
Suppose USD 450,000 is earned from large Indian companies holding valid GST registrations, while the remaining USD 50,000 comes from individuals, professionals, small businesses and other customers who have not provided GST registration details.
It would be incorrect to analyse the entire USD 500,000 as one homogeneous revenue stream.
Supplies to GST-registered Indian businesses and supplies falling within the NTOR provisions can have materially different GST consequences. The former would ordinarily need to be examined under the reverse-charge framework, whereas the latter may create a direct OIDAR registration and payment obligation for the overseas supplier.
Businesses should therefore be able to identify and appropriately classify their Indian customer base.
This sounds straightforward but can become one of the more difficult parts of OIDAR compliance where a business has thousands of customers and its billing systems were never designed to collect Indian GST information.
How do you establish that the customer is in India?
Another issue that is sometimes overlooked is determining the location of the customer.
Section 13(12) of the IGST Act contains specific provisions concerning the place of supply of OIDAR services. The legislation also contains indicators that may be relevant in determining whether the recipient is located in India.
For an overseas digital business, this makes customer data important from a tax perspective.
Depending upon the business model, relevant information may include billing addresses, payment information, IP-related information, bank or card details and other customer-location indicators maintained by the platform.
Businesses entering India should therefore consider OIDAR requirements not merely as a tax-return issue but also as a systems and data issue.
If the underlying customer information is not being captured correctly, preparing an accurate GST return later can become considerably more difficult.
Registration under Form GST REG-10
A foreign supplier required to register under the OIDAR provisions follows a registration mechanism different from the normal GST registration applicable to an Indian business.
The application is made electronically in Form GST REG-10.
An overseas supplier is not ordinarily required to obtain an Indian PAN merely for making this application and may use the tax identification details of its home jurisdiction, subject to the applicable registration requirements.
Where the overseas supplier does not have a physical presence in India, the provisions also contemplate appointment of a representative in India for undertaking the prescribed compliance.
The registration process should therefore ideally be considered before significant B2C operations in India commence rather than after Indian revenues have accumulated.
What happens after registration?
Registration is only the first step.
An OIDAR registrant is generally required to account for IGST on taxable supplies falling within the relevant provisions and file the prescribed return in Form GSTR-5A.
GSTR-5A is a monthly return, presently due by the 20th day of the succeeding month.
For many overseas businesses, however, the principal difficulty is not filing the form itself. The greater challenge is producing reliable underlying information.
The business needs to be able to determine, amongst other things:
total Indian revenue;
whether customers are GST registered;
which transactions fall within the OIDAR provisions;
the location of the relevant recipients;
applicable exchange rates and taxable values;
taxes collected and payable; and
adjustments, refunds and credit transactions.
The GST filing process should therefore be reconciled with the company's billing and accounting records rather than being treated as an isolated compliance exercise.
SaaS businesses require particular attention
SaaS businesses frequently assume that their Indian GST position is straightforward. It may not always be.
For example, an overseas technology company may provide:
access to a software platform;
implementation services;
configuration;
customer support;
training;
consulting; and
customised development.
The question is then whether these components constitute a single composite service, separate services, or a combination of OIDAR and non-OIDAR supplies.
The removal of the "minimal human intervention" language in 2023 makes the analysis more important rather than eliminating the need for one.
Simply describing a product as "SaaS" is therefore not sufficient to determine its Indian GST treatment. The contractual arrangements, actual manner of delivery, invoicing model and customer profile should all be considered.
What about app stores, marketplaces and digital platforms?
Where services are supplied through an intermediary, marketplace, app store or other digital platform, it should not automatically be assumed that the underlying service provider bears the OIDAR obligation.
The IGST Act contains specific provisions dealing with situations in which an intermediary facilitating OIDAR supplies may be treated as the supplier for tax purposes.
The contractual relationship between the platform, underlying supplier and customer therefore needs to be examined.
This is particularly important where the platform collects consideration, controls delivery or invoicing, or otherwise sits between the underlying service provider and the Indian customer.
What should a business do if it has already been supplying India without registration?
This is increasingly relevant for established overseas businesses.
A company may discover its Indian GST exposure only during a funding round, acquisition, financial due diligence exercise, expansion into India or review by its global tax team.
The first step should not simply be to obtain a registration.
The historical position should first be quantified.
This would ordinarily involve identifying:
when potentially taxable supplies commenced;
the nature of the services supplied during each relevant period;
the effect of the October 2023 amendments;
the B2B and B2C/unregistered customer mix;
the GST that may have been payable;
interest and other potential exposures; and
the appropriate route for regularising the position.
This analysis is particularly important because a business may not have separately recovered Indian GST from its customers historically. Depending upon the contractual arrangements, any historical tax liability could therefore become a cost to the supplier itself.
Five questions overseas businesses should ask
In our experience, an OIDAR review should not begin with the question, "Do we need a GST number?"
It should begin with the underlying business model.
An overseas business supplying India should be able to answer five questions:
What exactly are we supplying?
Review the actual product and contractual deliverables rather than relying only upon the description used on invoices or the company's website.
Who are our Indian customers?
Separate GST-registered customers from individuals and other unregistered recipients.
What evidence do we maintain regarding customer location?
Check whether billing and technology systems retain sufficient information to establish the recipient's location.
Who legally makes the supply?
Where an app store, marketplace, reseller or payment platform is involved, examine which entity is treated as the supplier.
Have we considered the position from 1 October 2023 onwards?
A historical conclusion based upon the old "minimal human intervention" test may no longer be appropriate.
Answering these questions usually provides a much clearer indication of whether an Indian OIDAR registration is required.
Penalties and historical exposure
Failure to appropriately register, report or pay GST can result in tax demands together with applicable interest and penalties under the GST legislation.
For an overseas company, however, the commercial consequences can extend beyond the immediate tax amount.
Unresolved Indian indirect-tax exposures may emerge during investor or acquisition due diligence, establishment of an Indian subsidiary, restructuring of Indian operations or discussions with Indian enterprise customers.
Accordingly, where there is a historical issue, it is generally preferable to quantify and address the position rather than allow an uncertain exposure to continue accumulating.
How CNK RK & Co. can assist
CNK RK & Co. advises overseas technology and digital businesses on their Indian tax and regulatory obligations, including the OIDAR framework.
Our work in this area typically begins with an applicability assessment, rather than immediately proceeding to registration. We review the service offering, contracts, customer profile, billing arrangements and manner in which services are actually delivered to determine the appropriate Indian GST treatment.
Where registration is required, we can assist with Form GST REG-10 registration, representation in India where applicable, GSTR-5A compliance, tax-payment processes and reconciliation of Indian revenues.
For businesses that have already been supplying customers in India, we can also review historical transactions, quantify potential exposure and assist in determining an appropriate regularisation strategy.
Importantly, OIDAR is often only one part of the India question.
As an overseas company's Indian business grows, questions may also arise around permanent establishment, withholding taxes, transfer pricing, FEMA, establishment of an Indian subsidiary and the appropriate structure for employees and operations in India.
Our tax and cross-border advisory teams therefore consider OIDAR compliance within the wider context of the client's Indian business rather than treating it merely as a monthly GST filing requirement.
CNK RK & Co. has offices across India and in the UAE and is a member of the INAA Global Network.
Frequently Asked Questions
Does a small overseas supplier have to register for OIDAR in India?
There is no general turnover threshold comparable to the ordinary domestic GST registration threshold that an overseas OIDAR supplier should rely upon. Even businesses with relatively limited Indian revenues should therefore examine whether the registration provisions apply.
Does every sale of software to India require OIDAR registration?
No. The nature of the service, location and GST status of the customer, manner of delivery and contractual arrangements all need to be considered. B2B supplies to GST-registered recipients also need to be distinguished from supplies falling within the NTOR framework.
What is Form GSTR-5A?
GSTR-5A is the return prescribed for persons providing OIDAR services from outside India to non-taxable online recipients in India. It is filed monthly.
What changed in October 2023?
Among the important amendments, the requirement that an OIDAR service be "essentially automated and involving minimal human intervention" was removed. Changes were also made to the definition of a non-taxable online recipient. Overseas businesses relying upon an analysis undertaken before these amendments should therefore reconsider their position.
Can an overseas SaaS company fall within OIDAR?
Potentially, yes. However, a SaaS label by itself does not determine the GST treatment. The actual services, customer arrangements and manner of supply should be reviewed.
We have been selling to Indian customers for several years without an OIDAR registration. What should we do?
The historical exposure should first be assessed rather than immediately assuming that every Indian transaction was taxable. The review should ordinarily separate B2B and other supplies, consider changes in law during the relevant period and quantify tax, interest and other potential exposure before determining how the position should be regularised.