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India’s goods and services tax for electronically supplied services

RSM has more than 1,200 professionals across 24 offices in India. Although just under half of the country's workforce is in agriculture, its economy boasts a wide range of products and services that are the primary source of its growth.

The following content was reviewed and updated as of Apr. 1, 2018.

Legislative effective date

Dec. 1, 2016, under the service tax regulations replaced by the introduction of GST from July 1, 2017.

Name of tax

Goods and services tax (GST)

Statute of limitation

Five years

Standard rate of GST

18 percent

Electronic supplies

Legislation concerning the taxability of the OIDAR (Online Information and Database Access or Retrieval) services was extended to include additional digital services, and it is this that defines how to determine what is an electronic service.

“…a service 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”

This definition also includes, but is not limited to, the following examples of electronic services:

  • Advertising on the internet
  • Providing cloud services
  • Provision of e-book, movies, music, software, and other intangibles through telecommunication networks or interest
  • Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network
  • Online supplies of digital content (movies, television show, music and the like)
  • Digital data storage
  • Online gaming

Registration

Nonresident businesses that generate revenue in relation to services supplied to end consumers (business to customer transactions) are required to register as a nonestablished taxpayer.

There is a simplified registration process available online that the nonresident supplier should follow.

For regular GST registrations, obtaining a permanent account number (PAN) is required; for the simplified registration, obtaining a PAN is not necessary. A fiscal representative is generally appointed to meet all the domestic GST reporting and filing obligations.

Customer identification

Business to business (B2B) customers are those that are registered for GST and provide details of their GST number. All other customers, including non-GST registered business customers, are treated as business to customer (B2C).

B2B customers will self-assess GST under the reverse charge rules, whereas B2C customers will be charged GST by the supplier.

Currently, there are no exemptions from charging GST for certain types of organizations. For example: nonprofit entities, charitable organizations, health, education, and government bodies are not exempt from being charged GST. Additionally, there is no specific legislation regarding foreign consumers accessing digital services in India or accessing digital services while traveling (e.g., ships and aircraft).

Customer location

The requirement to charge GST depends on whether or not the B2C recipient is located in a taxable territory. A person is deemed to be located in a taxable territory if any two of the following conditions are present:

  • The address presented by the service recipient is in a taxable territory.
  • The payment card used by the service recipient has been issued in a taxable territory.
  • The service recipient’s billing address is in a taxable territory.
  • The IP address of the device used by the service recipient is in a taxable territory.
  • The service recipient’s bank in which the account used for payment is maintained in a taxable territory.
  • The location code of the SIM card used by the service recipient is from a taxable territory.
  • The location of the service recipient’s fixed landline through which the service is received by the person is in a taxable territory.

Supplier identification

A foreign supplier covered by the Indian GST legislation is any taxable person located outside India that provides taxable supplies of digital services to customers in India. There are no exemptions with respect to certain organizations (e.g., nonprofits, educational institutions, etc.). The legislation states that if you are supplying a digital service, which is mediated by information technology, you are required to register and charge GST.

In transactions where an Indian intermediary is involved in arranging or facilitating the supply of digital services, but does not provide the main service on its own account, the intermediary is required to register, charge, collect and remit GST in respect of digital services.

However, the intermediary shall not be liable to account for GST if all of the following conditions are met:

  • The invoice, bill or receipt identifies the service provider and indicates the GST registration number of the service provider along with a description of the digital service.
  • The intermediary does not collect or process the payment between the recipient and the supplier.
  • The intermediary does not authorize delivery of the service.
  • The intermediary does not set the terms and conditions for the provision of the service.

Procedural matters

Invoices should be issued for all electronically supplied B2C services.

GST returns for nonestablished taxpayers need to be filed every month, with the submission date being 20 days after the end of the month.

For all taxable transactions, the recipient’s GST account number should be retained, along with:

  • Description of service
  • Date of service
  • Recipient of service
  • Value of service and GST amount charged
  • Information used to determine the location of the customer (B2C)

Historic transactions

Indian authorities have the legislative right to recover GST on historical transactions that predate the registration date. Technically, this could extend a full five years under the statute of limitation, but as the OIDAR definitions were only extended to cover certain electronic services with effect from December 2016, this will cap certain exposure items to this date.

India does not have a voluntary disclosure mechanism to mitigate potential penalties.

 

 

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