IGST Section 14 — Special provision for payment of tax by a supplier of online information and database a

Section 14 of the IGST Act, 2017 lays down special provisions for the payment of Integrated Goods and Services Tax (IGST) on the supply of online information and database access or retrieval services (OIDAR) by suppliers located outside India to recipients also located outside India. It essentially ensures that the Indian government can collect taxes on these digital services consumed in India, even when both the supplier and consumer are offshore.

This section applies specifically to suppliers of OIDAR services located in a "non-taxable territory" (typically, outside India) when these services are received by a "non-taxable online recipient," essentially someone outside India. OIDAR services encompass a broad range of digitally delivered services like cloud services, online advertising, digital content (movies, music, e-books), online gaming, and software downloads. The core principle is that the offshore supplier is responsible for paying the IGST, treating it as a reverse charge mechanism in a cross-border context.

Here are the key conditions and exceptions:

• Primary Liability: The supplier located outside India is primarily liable to pay the IGST on these services. This means they are responsible for registering, filing returns, and remitting the tax.

• Simplified Registration Scheme: To facilitate compliance, the government has introduced a Simplified Registration Scheme. This allows the offshore supplier to obtain a single registration for IGST purposes. This simplifies the registration process compared to the standard GST registration.

• Representative in India:

  • If the offshore supplier has a representative in India, that representative is responsible for getting registered and paying the IGST on behalf of the supplier.
  • If the supplier doesn’t have a physical presence or representative in India, they can appoint a person in India specifically for paying the IGST. This appointed person then becomes liable for tax payment.

• Intermediary Exception: The proviso (the ‘Provided’ section in the law) addresses scenarios where an intermediary facilitates the supply of OIDAR services. Generally, the intermediary would be deemed the receiver of OIDAR service and then deemed to supply the service to customer (non-taxable online recipient), and thus must remit the tax. However, the intermediary is not considered the recipient (and thus not liable for IGST) if they meet all of the following conditions:

  • The invoice or bill clearly identifies the OIDAR service and the actual offshore supplier.
  • The intermediary doesn't authorize the charge to the customer or take part in its charge; essentially, they don't handle the payment processing between the offshore supplier and the customer.
  • The intermediary doesn't authorize the delivery of the service.
  • The general terms and conditions of the supply are set by the offshore supplier, not the intermediary.

Practical Examples:

• Example 1 (Typical Scenario): A US-based software company sells a subscription to its cloud-based design software to a company in the UK. The US company, being the OIDAR service provider in a non-taxable territory for a non-taxable online recipient, is liable to pay IGST to the Indian government. The US company would need to register under the simplified registration scheme.

• Example 2 (Intermediary): An Irish company operates a platform that connects freelance graphic designers in the US with clients in Canada. The platform only facilitates the connection and payment is processed directly between the designer and the client. The invoice clearly shows the US designer's details. Because all conditions are met, the Irish platform is not considered the recipient of OIDAR service and is not liable to pay IGST.

• Example 3 (Indian Representative): A Singapore-based company selling online educational courses has a branch office in India. This Indian branch office is responsible for registering for GST and paying IGST on the courses sold to users outside India on behalf of the Singaporean company.

Important Considerations:

The definition of OIDAR services and the scope of this section have been subject to interpretation. The GST Council has issued clarifications from time to time to provide greater clarity. Business owners should stay updated on these clarifications to ensure compliance. Moreover, if a company is unsure about their obligations under Section 14, they should consult with a GST expert to get specific advice. Ignoring these provisions can lead to penalties and legal issues.