Introduction
Online Information and Database Access or Retrieval services, referred to in this article as “OIDAR services”, are taxed under a special scheme in the Integrated Goods and Services Tax Act, 2017, hereinafter referred to as the “IGST Act”. This scheme rests on three provisions. Section 2(17) defines what an OIDAR service is. Section 2(16) defines who a non-taxable online recipient is, referred to in this article as an “NTOR”. Section 14 fixes liability on the overseas supplier where these two conditions are met. A related exemption, under Serial Number 10 of Notification No. 9/2017-Integrated Tax (Rate), also plays a part.
Both Section 2(17) and Section 2(16) were amended with effect from 1 October 2023. This article explains each provision in its earlier and its present form, and explains what the amendment actually changed.
What is an OIDAR Service
Section 2(17) of the IGST Act defines an OIDAR service. The definition, as it stands today, reads as follows.
“Online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply impossible to ensure in the absence of information technology, and includes electronic services such as advertising on the internet, providing cloud services, provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet, providing data or information, retrievable or otherwise, to any person in electronic form through a computer network, online supplies of digital content, digital data storage, and online gaming.
This is the definition in force from 1 October 2023. Before that date, the definition carried one more condition. The supply also had to be “essentially automated and involving minimal human intervention.” A service that failed this test was not OIDAR at all, whatever else it looked like.
The Hon’ble Bombay High Court examined this earlier test in Globolive 3D Private Limited v. Union of India, (2023) 117 GSTR 380. The case concerned a company that built custom 3D city models for a client outside India, using satellite imagery and skilled manual work. The Hon’ble Court held that electronic delivery alone does not make a service OIDAR. The Hon’ble Court said that reading the definition that way “would lead to an absurdity,” since any file sent by email would then qualify. The Hon’ble Court held that the definition covers services that are, by their nature, automated and generic, of the kind listed in the definition itself, and not a bespoke service built for one customer.
The Karnataka Appellate Authority for Advance Ruling reached a related conclusion in NCS Pearson Inc., Order No. KAR/AAAR/07/2020-21, dated 13 November 2020. The case concerned computer based tests taken by individual candidates in India. Some of these tests involved a human evaluator scoring part of the answer. The Authority held that human effort spent checking or validating an otherwise automated process does not take a service out of OIDAR. It remains “minimal human intervention.” Only bespoke, customer specific human effort, of the kind seen in Globolive, has that effect.
With effect from 1 October 2023, the automation test was removed from Section 2(17) altogether. A service now qualifies as OIDAR if two conditions are met. Its delivery must be mediated by the internet. Its supply must be impossible without information technology. Whether the service required heavy manual effort to build no longer matters. What matters is how the service is delivered to the customer.
Who Is A Non-Taxable Online Recipient
Section 2(16) of the IGST Act defines an NTOR. The definition, as it stands today, reads as follows.
“Non-taxable online recipient” means any unregistered person receiving online information and database access or retrieval services located in taxable territory.
This is a short and simple test. Is the recipient registered under GST. If not, the recipient is an NTOR. Nothing else is asked. Before 1 October 2023, the test was narrower. The definition then read as follows.
“Non-taxable online recipient” means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.
This older definition asked a second question. Why did the recipient receive the service. If an unregistered individual used the service for personal reasons, the test was met, and the individual was an NTOR. If the same individual used the service for work, for a business, or for a profession, the test failed. Such a person was not an NTOR at all, even though unregistered. This second question had a real consequence. Section 14 of the IGST Act, discussed below, only fixes liability on the overseas supplier where the recipient is an NTOR. An unregistered individual using the service for business purposes was, before 1 October 2023, outside this definition. The supply to such a person accordingly fell outside Section 14. It did not fall within reverse charge either, since reverse charge requires a registered recipient able to self assess tax, which this recipient was not. No provision reached the supply. This was a real gap in the law.
From 1 October 2023, the purpose based question was deleted. Every unregistered person is now an NTOR, whatever the purpose of use. The gap described above no longer exists.
The Charging Provision
Section 14 of the IGST Act fixes liability on the overseas supplier. Section 14(1) provides as follows.
“On supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by a non-taxable online recipient, the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services.”
This provision has not itself been amended. It has always said the same thing. Liability falls on the overseas supplier when the service is OIDAR and the recipient is an NTOR. Both conditions must be met. The 2023 amendments changed what counts as OIDAR and who counts as an NTOR. They did not touch Section 14 directly. The wider reach of Section 14 from 1 October 2023 comes entirely from the wider definitions feeding into it. Section 14(2) requires the overseas supplier to take a single registration, under a Simplified Registration Scheme, in Form GST REG-10. Notification No. 2/2017-Integrated Tax, dated 19 June 2017, appoints the Principal Commissioner of Central Tax, Bengaluru West, as the officer empowered to grant this registration, for suppliers anywhere in the country.
The Exemption Under Serial Number 10
Serial Number 10 of Notification No. 9/2017-Integrated Tax (Rate), dated 28 June 2017, exempts certain cross border services from IGST. The entry reads as follows.
“Services received from a provider of service located in a non-taxable territory by (a) the Central Government, State Government, Union territory, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession; (b) an entity registered under section 12AA of the Income-tax Act, 1961, for the purposes of providing charitable activities; or (c) a person located in a non-taxable territory.”
Read alone, this looks wide. It looks like it exempts any cross border service received by an ordinary individual for personal use. It does not, because of a proviso attached to the same entry. The proviso, as it stood before 1 October 2023, read as follows.
“Provided that the exemption shall not apply to (i) online information and database access or retrieval services received by persons specified in item (a) or item (b); or (ii) services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India received by persons specified in the entry.”
Limb (i) of this proviso takes OIDAR services out of the exemption. This was true from 28 June 2017, the date the notification was first issued. The exemption at Serial Number 10 was never available for an OIDAR service, even one received by an individual for purely personal use. With effect from 1 October 2023, Notification No. 12/2023-Integrated Tax (Rate) substituted the proviso. The new text reads as follows.
“Provided that the exemption shall not apply to online information and database access or retrieval services received by persons specified in item (a) or item (b).”
Limb (i) survives, in substance unchanged. Limb (ii), concerning the transport of goods by vessel, was dropped. That limb had nothing to do with OIDAR services. Its removal accordingly made no difference to the taxability of OIDAR services. The effect of Serial Number 10, before and after amendment, is the same for an OIDAR service. The exemption does not apply to it, and never did. What decides whether a given OIDAR supply is taxable is not this notification. It is whether the recipient is an NTOR, tested under Section 2(16), as explained above.
Reverse Charge On Registered Recipients
A registered person is never an NTOR, under either the old or the new definition. A supply made to a registered person accordingly falls outside Section 14 altogether, in both periods.
Such a supply is instead governed by the ordinary reverse charge rule for imported services. Section 5(3) of the IGST Act allows the Government to notify categories of supply taxable on reverse charge in the hands of the recipient. Notification No. 10/2017-Integrated Tax (Rate), Serial Number 1, is issued under this power. It covers any service supplied by a person located in a non-taxable territory to any person other than an NTOR. The registered recipient in India pays the tax, on a reverse charge basis. The overseas supplier bears no liability on this supply, in either period.
How The Amendment Changes Things
Two separate changes took effect on 1 October 2023, and both point the same way. Each widens the class of supply on which the overseas OIDAR supplier is liable. The first change is to Section 2(17). It removes the automation test. A service that once escaped OIDAR classification because of the human effort behind it may now qualify, since only the mode of delivery to the customer is tested. The second change is to Section 2(16). It removes the purpose based test. An unregistered individual using the service for business or professional reasons, previously outside the NTOR definition, is now inside it.
Neither change touches Serial Number 10 of Notification No. 9/2017-Integrated Tax (Rate) in any way that matters for OIDAR services. That exemption excluded OIDAR services before 1 October 2023, and continues to exclude them after. The amendment to its proviso only removed an unrelated limb concerning vessel transport. The real effect of 1 October 2023, then, is narrower and more precise than a general withdrawal of exemption. It is the closing of one specific gap, the unregistered individual using an OIDAR service for business purposes, who previously fell outside every charging provision, and the widening of one definition, so that a service built with substantial human effort can no longer escape OIDAR classification on that ground alone.
AMLEGALS Remarks
The taxability of an OIDAR supply made by an overseas person to a recipient in India depends on three questions. Is the service an OIDAR service under Section 2(17). Is the recipient an NTOR under Section 2(16). Does Serial Number 10 of Notification No. 9/2017-Integrated Tax (Rate) exempt the supply. The answer to the third question has been the same throughout, since the proviso to that entry has always excluded OIDAR services. The answers to the first two questions changed on 1 October 2023, when the automation test was removed from the definition of OIDAR, and the purpose based test was removed from the definition of NTOR. Together, these two changes, and not any change to the exemption notification, are what widened the liability of overseas OIDAR suppliers from that date.
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