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Online Services Changes In Service Taxation
April, 18th 2017

Online Information and Database Access or Retrieval (OIDAR) services are presently liable to Service Tax but recently, there has been a major shift in taxability of OIDAR services.

Meaning of OIDAR Services (w.e.f. 1.12.2016)

OIDAR services have been defined in Rule 2(1) (d)(ccc) of Service Tax Rules, 1994 as under:

"Online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology and includes electronic services such as,-

  1. advertising on the internet;
  2. providing cloud services;
  3. provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet;
  4. providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network;
  5. online supplies of digital content (movies, television shows, music, etc.);
  6. digital data storage; and
  7. online gaming".

As per Rule 2(1) (ccb) of Service Tax Rules, 1994, 'non-assessee online recipient' has been defined to mean as under:

"Non-assesse online recipient” means Government, a local authority, a governmental authority or an individual receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory."

Place of Provision of OIDAR Services

As per Rule 9 of Place of Provision of Services Rules, 2012, the place of provision of OIDAR services shall be the location of the service provider.

However, w.e.f. 1.12.2016, the place of provision of a service shall be the location of the recipient of service. In case of services other than online information and database access or retrieval services where the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.

Taxability of OIDAR Services w.e.f. 01.12.2016

W.e.f. 01.12.2016, services provided by persons located in non-taxable territory providing online information and data base access or retrieval (OIDAR) services in India have been made taxable vide Notification Nos 46/2016-ST to 50/2016-ST, all dated 09.12.2016.

Registration for OIDAR Services

For purpose of registration, proviso has been added in Rule 4 (1) of the Service Tax Rules, 1994 providing that  a person located in non taxable territory liable for paying the service tax in the case of online information and database access or retrieval services may make an application for registration in form ST-1A for registration within a period of thirty days from the date on which the service tax under section 66B of the Act is levied or the person located in non taxable territory has commenced supply of taxable services in the taxable territory in India and notwithstanding anything contrary in these rules, the registration shall be deemed to be granted in form ST-2A from the date of receipt of the application.

Registration of suppliers of cross border B2C OIDAR services in India is mandatory in India. If the service provider does not have a physical presence in India, then he can appoint an authorized person/agent to comply with the service tax laws and remit tax to the Government. In case the service provider is represented by authorized person or agent, such person may be allowed to take registration on behalf of service provider and comply with all service tax provisions on behalf of such service provider.

In absence of Income Tax PAN number, special registration procedure is being provided, which will be based on country code/registration/business number obtained by such service provider in the country of incorporation. The details of this procedure would be available on www.cbec.gov.in.

Documents, such as copy of certificate of registration/incorporation would be accepted in PDF format, which may be forwarded to the authority granting registration via Email. Further, a simple declaration by the service provider stating and affirming that they would charge service tax from the individual customers in India and deposit the same with Government of India through internet is required.

Payment by Service Provider of OIDAR Services

Vide Notification No. 6/2017-ST dated 30.01.2017, it has been provided that in case of online information and database access or retrieval services provided or agreed to be provided by any person located in a non-taxable territory and received by non-assessee online recipient, the service tax payable for the month of December, 2016 and January, 2017, shall be paid to the credit of the Central Government by the 6th day of March, 2017.

Thus, it is a special provision allowing for payment of Service Tax in relation to OIDAR services provided by person location in non-taxable territory for the month of December, 2016 and January, 2017 by 6th March, 2017. For other periods, normal provisions would apply.

This relaxation has been provided in view of such services brought under Service Tax net w.e.f. 1.12.2016. 'Online information and data base access or retrieval services. (OIDAR) have been defined in Service Tax Rules, 1994. [Rule 2(1)(ccd)] w.e.f. 1.12.2016].

Service Tax Return by OIDAR Service Provider

Vide Notification No. 48/2016-ST dated 09.11.2016, w.e.f. 01.12.2016 services of online information and database access or retrieval (OIDAR services) provided by any person located in a non-taxable territory and received by a person in the taxable territory and received by any person in the taxable territory other than non-assessee online recipient shall be taxable service under reverse charge mechanism. In case it is received by non-assesee online recipient, provider of service located in a non-taxable territory shall be the person liable to pay Service Tax.

Return under section 70 of the Finance Act, 1994, read with rule 7 of Service Tax Rules, 1994 with respect to online information and database access or retrieval services provided or agreed to be provided by any person located in a non-taxable territory and received by any person located in the taxable territory shall be required to be filed in new prescribed from ST-3C as per amended Service Tax Rules, 1994.

Exemption to OIDAR services

Whether threshold exemption shall be available to small services providers in relation to OIDAR services providers in non-taxable territory which are taxable w.e.f. 1.12.2016, CBEC has, vide Circular No. 202/12/2016-ST dated 09.11.2016 clarified that exemption is not available to such service providers.

Changes in exemption relating to OIDAR Services

Central Government vide Notification No. 47/2016-ST dated 09.11.2016, has amended Entry 34 of Notification No. 25/2012-ST dated 20.06.2012, w.e.f. 1.12.2016 and inserted a proviso to provide that the exemption shall not apply to online information and database access or retrieval services (OIDAR) received by persons specified in clause (a), i.e., Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

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