Any product or service that is rendered via the internet with minimum human involvement is a “Digital Good”. Swift digitization has completely changed the world we live in; this digital world has everything accessible online from shopping to socializing.
As more and more people are becoming part of this digital economy, there is a need for countries to develop a proper framework to get the fair tax share from these digital revenues.
Digital businesses are different from the traditional version of business in three ways;
- Digital businesses don’t require any physical asset, shop or factory.
- The digital economy relies on intellectual property assets.
- They generate value by the “user-participation” from the source country market.
In 2016 India adopted a tax system for all these digital transactions which don’t involve any physical interface with the suppliers. India has sorted its tax laws under Online Information Database and Retrieval (OIDAR).
Services included in OIDAR
India applies general sales tax (GST) on many electronic services, some of them are;
- Cloud-based services
- E-books, online streaming content.
- Digital data storage
- Online gaming
For OIDAR services and products, the applicable GST on transactions will be Indian GST. However, the manner of the levy of GST will be different depending on the business entity is registered or not under GST laws. The current rate of GST in India is 18%.
If both the service supplier and the receiver are based in India
In this case service suppliers should be registered in India and GST will remain the same for both OIDAR and in-OIDAR services. i.e. service supplier can charge a tax of 18% on their services and after collection of this tax from the receiver of service which is also located in India, deposit it to the government of India.
If the service supplier is outside India and the receiver is based in India
In this case, the GST will depend on the type of service i.e. is it OIDAR or non OIDAR.
Important things to know
For digital business in India, there are certain things to be kept in mind;
- It is essential for the service provider to get registered under GST laws even if the person doesn’t have any business establishment in India.
- If the service supplier has any entity in India representing it as the overseas supplier in the taxable territory, it is required that the entity must register itself under GST laws and pay this tax to the government of India on the behalf of the supplier.
- If the supplier doesn’t have any representative in India, he is required to appoint a person in India for the tax payment.
- If any intermediator located outside India is providing service on behalf of the service supplier, it is mandatory for him to get registered under Indian GST laws.
In India, the taxes under OIDAR services were levied under a service tax regime which is effected from 1st December 2016 and also levied under the GST regime which is effective from July 2017.
The Indian government offers the registration process by simplified registration electronic form.