In this hi-tech age, business has undergone major transformation and new methods of transactions have evolved which are fast paced and require little physical effort. Out of many such evolutions, one is the concept of OIDAR services, which are provided through internet and received by the recipient online without physical interface with the supplier of such services. The various online services provided are:

 

1. Advertising on the internet

 

2. Providing cloud services

 

3. Provision of e-books, movie, music, software and other intangibles

 

4. Providing data or information, retrievable or otherwise

 

5. Digital data storage

 

6. Online gaming

 

INCOME TAX PROVISIONS:

 

In the case of OIDAR services where the service provider (recipient of service charges) is an Indian resident, income would be taxable in India. However, the scenario would be different if the service provider (recipient of service charges) is a non-resident. Let us analyze each case.

 

1. Advertising on internet: If a resident pays for online advertisement to a nonresident, it is treated as business income and in absence of PE in India, it is not taxable in India.

 

2.  Providing cloud services: There are 3 service models in cloud computing:

 

1. Software as a Service (SaaS)

 

2. Platform as a Service (PaaS)

 

3. Infrastructure as a Service (IaaS)

 

Where the recipient (service provider) of cloud services is non-resident, it shall be treated as business income and is taxable in India only when NR has permanent establishment in India.

 

3. Provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet and online supplies of digital content

 

As the services are for use of the payer only and no copyright is provided, it is regarded as sale, hence business income. If there is no fixed space at the disposal of the service provider, no PE, hence not taxable in India.

 

4. Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network and digital data storage

 

If there is copyright over the data/information/news/articles/photos and rights under Copyrights Act are transferred to the payer, then the payment will be royalty. If information collected from general domain is provided to the payer then it would be business income for the NR payee, payment for use of facilities is not royalty however providing equipment for controlling, monitoring and operating will fall under section 9(1)(vi) and will be regarded royalty.

 

1. Web Hosting Services

 

It allows to post a website or webpage on the internet. If server is stationed in India, then payment for these services would be taxable in India.

 

2. GST on OIDAR Services

 

Where the service provider as well as service recipient are located in India, then the place of supply would be location of recipient of service. For Business to business (B2B) overseas transactions where receiver is located in India, place of supply shall be location of service recipient. For Business to consumer (B2C) overseas transactions where receiver is located in India, the liability to discharge tax is on overseas suppliers. A person supplying OIDAR services from outside India to a nontaxable online recipient is required to obtain registration by filing GST REG 10.

 

Equalization Levy

 

Let us analyze the concept of equalization levy which is chargeable @ 6% on payments made to NRE (not having PE India) with regard to OIDAR services such as online advertisements, hosting websites, SaaS, PaaS and IaaS. Person receiving service from non-resident must deduct 6% of the amount of consideration as equalization levy and remit the same to Government by 7th of the following month.

 

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