In the recent months, around 40-50 more offshore entities have got themselves registered with the GST authorities, after an investigation revealed them not paying taxes on Online Information and Database Access or Retrieval (OIDAR) supplies, official sources said.
The new registrations may lead to an increase in GST revenue to the tune of a few hundred crores, the sources said.
OIDAR is a category of services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services. Examples include online advertising, cloud services, e-books, movie, music, digital data storage, and online gaming are all part of the OIDAR.
“The Directorate General of GST Intelligence (DGGI) has been making continuous efforts to make off-shore entities (who provide OIDAR services) aware of India’s domestic taxation laws, so that they pay the required tax amount,” an official said. “In several cases, we find that such entities are genuinely unaware of the law…so they take registration and pay tax.”
Under GST provisions, when overseas entities offer digital services to the end users in India, the tax obligation lies with the overseas service provider in a non-taxable territory. These entities are mandated to register for GST and submit monthly returns detailing their Indian sales while remitting applicable taxes. However, many fail to comply, which often results in significant financial penalties and legal repercussions for undisclosed transactions and tax remittance failures, say experts.
The DGGI in its annual report for FY24 had said that since the introduction of GST in July 2017, a total of 574 offshore entities have registered with the GST department. As a result, revenue collection from this sector rose from Rs 80 crore in FY18 to Rs 2,675 crore in FY24.
On dealing with such offshore suppliers, it has also dawned that several such suppliers are “ignorant of the law, and upon conveying the legal position clearly, such suppliers agree to comply with the GST mandate,” the DGGI stated in the report.
Sandeep Sehgal, partner-tax, AKM Global said the DGGI is making several efforts like sending emails to such service providers to make them aware and telling them to register. “The approach is commendable since they are not taking hard steps in the initial instances and are focussing more in creating awareness,” he added.
Shareen Gupta, Partner, JSA Advocates and Solicitors said that the OIDAR provisions requiring offshore companies to pay tax in India also recognises “intermediaries” as persons liable to pay GST in India. “But owing to complex business models for services rendered through online medium, the correct taxability and valuation for the same often does not get identified, hence it’s important that the government issues clarifications to help overseas entities to be compliant with the requirements of the Indian law,” she said.
In its annual report, the DGGI had highlighted that many offshore providers of OIDAR services represent a “relatively untapped” sector with “tremendous” revenue potential; hence, innovative solutions to prevent revenue leakages are essential.
Some experts say that the non-compliance of GST by offshore OIDAR service providers is more pronounced in the online gaming sector. For offshore platforms offering online money gaming services, it is therefore imperative to understand and comply with the updated GST regulations, effective from October 1, 2023, they say. “The penalties for evasion are steep, and platforms that fail to meet their obligations risk not only fines but also the potential loss of access to one of the world’s largest gaming markets,” said Ankur Gupta, practice leader-indirect tax at SW India.
