India: Changes to GST online information database access and retrieval (OIDAR) rules

The Indian government on 31 July 2023 published Notification No. 28/2023- Central Tax, which implements changes to the goods and services tax (GST) online information database access and retrieval (OIDAR) rules in the Finance Act 2023, effective 1 October 2023.

Under the current GST rules, India requires non-resident providers of OIDAR services to non-taxable online recipients in India to register for, collect, and remit GST. OIDAR services are defined as services with delivery mediated by information technology over the internet or an electronic network and the nature of which renders their sale essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology.

• The Finance Act 2023 removed the terms “minimal human intervention” and “essentially automated” from the definition of OIDAR services. In this respect, services that were traditionally excluded due to the human involvement element may come within the scope of the GST. Thus, any service with delivery mediated by information technology or an electronic network, the provision of which is impossible to ensure without information technology, would be in the scope of OIDAR services.
• The Finance Act 2023 also amends the definition of “non-taxable online recipient” to include a person receiving OIDAR services who is registered for GST solely for the purpose of claiming the “tax deduction at source” (TDS) deduction. Under the current regime, a non-taxable online recipient includes unregistered customers, individuals, and public bodies. For sales made to GST-registered persons (B2B customers), the GST self-assessment mechanism will apply. However, India also operates a TDS regime wherein most public bodies are required to withhold (i.e., apply a tax deduction at source) 2% on payments made to the seller of taxable goods and/or services when the total value of such sale, under an individual contract, exceeds INR 250,000. The TDS can later be deducted by the seller if they are GST-registered. As a result, certain sellers may register for GST simply to be able to receive the TDS deduction. Due to this amendment, taxpayers registered for the GST solely for TDS purposes will be considered B2C customers, and a non-resident seller will be required to charge and collect GST for sales made to them.
• In addition, the Finance Act 2023 introduces penalties on marketplaces facilitating the sale of goods/services of vendors in India that are not GST-registered, if they are required to do so. Under the current regime, vendors selling goods through a marketplace are required to register for GST purposes, regardless of their sales revenues. However, vendors providing services through a marketplace are required to register for GST purposes only if the value of their annual sales exceeds INR 2 million. The Finance Act 2023 imposes penalties on marketplaces that enable underlying vendors that are not registered for the GST to sell on their marketplace. It shifts the onus on marketplaces to assess whether the underlying vendors that are not GST registered have an obligation to do so. This assessment would differ between (1) underlying vendors of goods, which must be GST registered in any case, and (2) underlying vendors of services, in which case the marketplace should check if the unregistered vendor has exceeded the registration threshold. 

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com