OIDAR Services Under GST: A Complete Guide for Digital Businesses

In today’s digital world, many of us use online services like Zoom, or Google Drive. These services are often provided by companies located outside India. To ensure fair taxation and bring such services under India’s tax net, the government introduced a category under GST called OIDAR services.

OIDAR stands for Online Information and Database Access or Retrieval services. The GST Council created this category to make sure that foreign digital service providers also pay tax just like Indian companies. This blog explains what OIDAR services are, how GST applies to them, and what digital businesses need to do to stay compliant.

What Are OIDAR Services Under GST?

OIDAR services, or Online Information and Database Access or Retrieval services, refer to digital services that are provided over the internet and involve little to no human intervention. Under India’s GST framework, these services are defined by the IGST Act as those delivered through electronic networks in an automated manner. They are inherently digital and are accessed and consumed electronically by users. Common examples of OIDAR services include streaming content on platforms like Netflix or Prime Video, listening to music on Spotify, attending virtual meetings via Zoom, designing on tools like Canva, downloading software or e-books, using cloud storage services like Google Drive or Dropbox, and learning through platforms such as Udemy or Coursera. If a service is delivered online and operates without active human support on the provider’s end, it generally qualifies as an OIDAR service under GST.

How Does GST Apply to OIDAR Services?

GST applies to both Indian and foreign providers of OIDAR services, but in different ways. The rules also change depending on whether the customer is a business or an individual.

A. Indian OIDAR Service Providers:

• Must register for GST (if turnover exceeds the threshold)
  
  
• Charge 18% GST on invoices
  
  
• File regular GST returns

B. Foreign OIDAR Service Providers:

If a company outside India provides digital services to Indian users, the rules depend on the type of customer:

1. When the Indian customer is a business (B2B):

• GST is paid by the Indian business using the Reverse Charge Mechanism (RCM)
  
  
• The business can claim input tax credit (ITC)

2. When the Indian customer is an individual (B2C):

• The foreign company must:
  
  
  
  • Register under GST in India
    
    
  • Pay 18% GST on services provided
    
    
  • File monthly GST returns

Place of Supply Rule:

The location of the customer determines whether GST is applicable. If the service is used in India, GST must be paid no matter where the provider is based.

How Can OIDAR Suppliers Comply with GST?

Foreign digital companies offering services to Indian individuals must follow certain GST rules. Here’s how they can stay compliant:

A. Register for GST in India:

• No turnover limit applies—registration is mandatory
  
  
• Must apply using Form GST REG-10
  
  
• If they don’t have a physical presence in India, they need to appoint a representative
  
  

B. File Monthly Returns (GSTR-5A):

• Return must be filed by the 20th of every month
  
  
• Includes details of all supplies and tax paid

C. Issue Proper Invoices:

Invoices should include:

• Name and GSTIN of the supplier
  
  
• Description of the service
  
  
• Amount charged
  
  
• GST charged at 18%

D. Maintain Records:

Suppliers must keep records of:

• Customer location
  
  
• Amount charged
  
  
• Taxes paid
  
  
• Invoices issued

Records should be stored for at least 6 years.

Using GST automation platforms like CashFlo can help businesses easily handle all of these steps.

What Is the Role of Indian Customers in OIDAR Transactions?

Indian recipients also have responsibilities based on whether they are registered businesses or individual users.

If the Indian customer is a business (registered under GST):

• The business pays GST using RCM
  
  
• Needs to create a self-invoice
  
  
• Can claim input tax credit for the GST paid

If the customer is an individual (not registered under GST):

• The foreign supplier must pay GST directly
  
  
• No input credit is involved
  
  

It’s important for Indian customers to correctly identify whether the service qualifies as OIDAR and apply the right tax treatment.

What Challenges Do Businesses Face?

Applying GST on digital services is not always easy. Both foreign service providers and Indian customers face some difficulties:

A. Classifying OIDAR Services:

Not all online services are OIDAR. Services involving human interaction (like live consultancy or online tutoring with a human trainer) may not fall under OIDAR.

B. Identifying the Place of Supply:

Foreign providers need to confirm if the user is located in India. This is done using:

• Billing address
  
  
• IP address
  
  
• Payment information
  
  
• SIM card country code

C. Technical Issues:

Foreign providers may not be familiar with Indian tax systems. Managing returns, currency conversion, and working with Indian banks can be complex.

D. Risk of Tax Audits:

Indian tax authorities (like CBIC) track digital services provided in India. If a foreign business is not compliant, it may receive legal notices or face service bans.

What Happens If a Business Doesn’t Comply?

Non-compliance with GST rules can have serious consequences for digital businesses:

A. Penalties:

• Interest on late payments
  
  
• Fines for missed returns
  
  
• Additional penalties for non-registration

B. Service Restrictions:

The government may block access to non-compliant digital platforms in India.

C. Loss of Trust:

Customers may lose trust if services are suddenly stopped due to tax issues. It can also hurt the provider’s reputation.

To avoid these issues, businesses must act early and stay compliant.

Best Practices for OIDAR GST Compliance

Following some basic practices can make GST compliance easy for digital service providers:

1. Use Automation Tools:

Platforms like CashFlo help businesses:

• Register for GST
  
  
• Generate correct invoices
  
  
• File GSTR-5A on time
  
  
• Track tax payments and deadlines

2. Don’t Delay Registration:

Foreign providers should register before offering services to Indian users. Waiting too long can lead to penalties.

3. Work with Experts:

Hire Indian GST consultants who understand cross-border taxation. They can help ensure correct classification and reporting.

4. Integrate GST with Billing Systems:

Make sure GST is added automatically to invoices and recorded properly. This saves time and prevents errors.

Conclusion

India’s GST law has made it clear that digital services are not outside the tax net. Whether you’re an Indian startup offering online content or a global SaaS provider with Indian users, GST compliance is essential.

The concept of OIDAR services ensures that both Indian and foreign providers are treated fairly. Businesses that fail to comply face risks like penalties, service blocks, and legal action.

But with the right tools and knowledge, GST compliance can be simple. Platforms like CashFlo help businesses automate compliance, file returns on time, and avoid mistakes.

If your business offers digital services to Indian users, now is the time to get GST-ready. Don’t wait for a tax notice, stay ahead and stay compliant.