Introduction
In recent months, an additional 40-50 offshore entities have registered with Indian GST authorities following investigations into tax non-compliance related to Online Information and Database Access or Retrieval (OIDAR) services. This development is expected to boost GST revenue by several hundred crores, according to official sources. The ongoing initiative is part of a broader effort by the Directorate General of GST Intelligence (DGGI) to ensure overseas service providers adhere to India’s tax laws when delivering digital services to Indian consumers.
What is OIDAR?
OIDAR services refer to a category of services that are provided online through the internet, with no physical interface between the supplier and recipient. Common examples include online advertising, digital data storage, cloud services, e-books, and entertainment services like music and movies. These services are consumed directly by Indian end-users without any physical intermediary, which places tax liability directly on the foreign service providers.
Efforts by GST Authorities
The DGGI has been actively making offshore OIDAR service providers aware of India’s tax laws, encouraging them to register for GST and comply with filing requirements. According to an official statement, many offshore entities are genuinely unaware of Indian tax requirements. To bridge this gap, the DGGI has taken a less stringent approach initially, focusing on awareness and voluntary compliance. Email notifications and direct outreach have been pivotal in encouraging compliance among these offshore suppliers.
Since the introduction of GST in July 2017, over 574 offshore entities have registered under the GST regime, contributing significantly to revenue growth in this sector. GST collections from OIDAR services rose from ₹80 crore in FY18 to a remarkable ₹2,675 crore in FY24, demonstrating the substantial growth potential within this relatively untapped area.
Tax Compliance Challenges and Opportunities
Ensuring compliance for offshore digital services providers presents unique challenges, particularly in complex business models such as online gaming, digital subscriptions, and online advertising. According to experts, non-compliance is more common among offshore entities providing online money gaming services—a rapidly expanding sector with high revenue potential. Starting October 1, 2023, updated regulations took effect, specifically addressing the requirements for offshore online gaming platforms to ensure GST compliance.
Experts like Sandeep Sehgal from AKM Global appreciate the DGGI’s proactive approach, emphasizing awareness rather than penal action during initial non-compliance. However, the intricate nature of intermediary services, which often fall under OIDAR, can lead to confusion over who is liable to pay GST—the offshore provider or an intermediary. Shareen Gupta, Partner at JSA Advocates and Solicitors, stressed the importance of government-issued clarifications to help offshore entities better understand compliance requirements.
The Path Forward
With many offshore OIDAR service providers representing a largely untapped sector with tremendous revenue potential, the Indian government recognizes the need for innovative solutions to prevent revenue leakage. Addressing gaps in awareness and simplifying registration procedures could lead to greater tax compliance and, in turn, increase government revenue. For digital service providers, adhering to Indian GST laws not only helps them avoid significant penalties but also opens doors to continue accessing one of the world’s largest consumer markets.
Conclusion
The recent surge in offshore GST registrations reflects the DGGI’s sustained efforts to educate and enforce compliance among foreign digital service providers. Moving forward, continuous awareness campaigns, clarifications, and streamlined processes will be key in ensuring that offshore entities remain compliant and contribute to India’s growing digital economy. Offshore digital platforms, especially in sectors like online gaming, must proactively adapt to the updated GST framework to maintain their foothold in the Indian market.