India Imposes Tax on Downloads From Overseas Providers

India’s Ministry of Finance recently amended service tax rules related to online information and database access or retrieval (OIDAR) services.

The government said it is imposing a 15% tax on downloads and purchases of digital goods from offshore retailers.

Here are some key changes, effective from December 1, 2016:

  • The definition of OIDAR services is expanded to include electronic services such as advertising on the Internet, providing cloud services, supplying online digital content, storing digital data, and offering online gaming.
  • For business-to-business (B2B) transactions, the place of supply for OIDAR services will be the location of the service recipients. These services will become taxable under the reverse charge mechanism.
  • For business-to-consumer (B2C) transactions, OIDAR services from overseas providers to Indian recipients will become taxable.
  • The liability to pay service tax for B2C transactions will be shifted to the overseas service provider.

The changes mean that India has significantly widened the scope of service taxes for online activities by including an array of services provided with the use of technology into the definition of OIDAR and by bringing online services provided by overseas suppliers within the scope of taxation.

The changes appear to be in line with Action 1 of the base erosion and profit shifting (BEPS) Action 1 package of the Organisation for Economic Cooperation and Development. Action 1 addresses tax challenges of the digital economy.

India’s Central Board of Excise and Customs notes that OIDAR services cover those that are automatically delivered over the Internet, or an electronic network, where there’s minimal or no human intervention. In practice, this can be either:

  • Where the provision of the digital content is entirely automatic, such as when a consumer clicks the “Buy Now” button on a website and the content downloads onto the consumer’s device or the consumer receives an automated email with the content, or
  • If there’s a small amount of manual process in providing the digital content. That doesn’t change the nature of the supply from an OIDAR service.

Examples of OIDAR services include:

  • PDF documents automatically emailed by the provider’s system,
  • PDF documents automatically downloaded from a site,
  • Stock photographs available for automatic download, and
  • Online course material consisting of prerecorded videos and downloadable PDFs.

The onus for collecting the tax is on the provider. So, for example, if a person sitting in India downloads a Kindle book from Amazon, the retailer will have to collect the tax and pay it to the government.

This full circular is available here:

The new tax is effective immediately.

© 2016

Jyothi Chillara