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An Introduction

With ever-evolving information technology, the businesses have found unique ways to conduct their business which did not exist earlier and given rise to new business models that rely more on digital technology, which do not require physical presence and derive substantial value from data collected and transmitted through digital mode. In last decade or so, business models have emerged that can be conducted primarily by exchange or transmission of data.

Key features of the digital economy

There are a number of features that are increasingly prominent in the digital economy, they are -

- Mobility
- Reliance on data, including so-called big data.
- Network effects which include user participation, integration.
- Use of multi-sided business models i.e. market may be in different tax - jurisdictions.
- Volatility due to low barriers to entry and rapidly evolving technology. (Section 4.3 of the BEPS Report on Action 1)

Digital economy or e-commerce

The sale or purchase of goods or services, conducted over computers by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or service do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments or alike.

E-commerce can be used either to facilitate the ordering of goods or services that are then delivered through conventional channels such as off-line mode or to order and deliver goods or services completely electronically (online mode). Paragraph 117 of the BEPS Report on Action 1 (2015)

Prevalent Form of Businesses

There are three prevalent forms of businesses, namely

1. Business-to-business models (B2B)
2. Business-to-consumer models (B2C)
3. Consumer-to-consumer models (C2C)

1. Business-to-business models (B2B)

The majority of e-commerce or digital economy consists of transactions in which a business sells its products or services to another business. These may include online mode of traditional transactions in which a wholesaler purchases consignments of goods online, which it then sells to consumers from retail outlets. It also includes logistics services, application service, hosting, outsourcing of support functions for e-commerce, security, customer care solutions, real-time auctions via the Internet, content management services etc.

2. Business-to-consumer models (B2C)

The second form is one of the earliest forms of e-commerce. In this model, businesses sell its goods or services to individuals. This model includes online vendors with no physical stores or offline presence, 'brick-and-mortar' stores that supplemented existing consumer-facing business with online sales, and manufacturers that use online business to allow customers to order and customize directly.

3. Consumer-to-consumer models (C2C)

One of the most common models of the business form is Consumer-to-consumer models, in this e-commerce play the role of intermediaries, helping individual consumers to sell or rent their assets by publishing their information on the website and facilitating transactions.

OIDAR or Cross-Border Services - GST

Prior to implementation of GST, the Central Government has brought key changes in the taxability of Online Information Database Access or Retrieval Services (in short 'OIDAR') w.e.f 1st December 2016. Definition of OIDAR under erstwhile Service Tax Rules 1994 (as amended) summarized as 'a category of services provided through internet and received by the recipient online without having any physical interface with the supplier of such services.'

Further, by an amendment in Place of Provision of Service Rules and Mega Exemption Notification, OIDAR services have been omitted from 'Place of Provision of Services' and also excludes services received from a person located in a 'non-taxable territory' by the government or a local authority or an individual for non-business purposes.

Following brief write-up will throw light on OIDAR or cross borders services under newly implemented GST regime such as relevant provisions under Integrated GST Act, Services included and excluded from the ambit of OIDAR, Illustrations   

The sub-section (17) of Section 2 of Integrated GST Act, dealt with OIDAR definition. In a summarized form,  services whose delivery is mediated by information technology over the internet and the nature of which renders their supply essentially automated and involving minimal human intervention which includes e-services such as -

- Advertising on the internet
- Providing cloud services
- Provision of e-books, movie, music, software etc.
- Providing data, retrievable or otherwise, in e-form
- Online supplies of digital content such as movies, music, television etc.
- Digital data storage and online gaming,

The new definition is an inclusive one and covers a wide range of services and activities like web-hosting, distance learning brought under GST regime.

Key aspects - In Brief

Taxable Event - Includes a supply of goods or services or both.
Taxable Territory - The territory to which the provisions of the GST law applies, i.e., the whole of India.
Non-Taxable Territory- Similarly, locations outside India will be considered as a non-taxable territory.

Supply - Defined?

Under GST regime, a transaction will be considered as 'supply', they are, supply should be -

- of goods or services.
- made for a consideration.
- made in furtherance of business.
- made by a taxable person.
- a taxable supply.
- made within the taxable territory  

With few exceptions, a transaction is deemed to be a supply even without consideration. Similarly import of services for a consideration, whether or not in furtherance of business is also treated as supply.

Compulsory Registration

Every person who supplies OIDAR services from place outside India to a person in India, other than a registered person is required to obtain a compulsory registration under GST regime. A representative of the supplier, who resides in India, may obtain a registration to pay the integrated tax on such transactions on and behalf of his supplier.

Incidence of Tax Liability

Supply of OIDAR services by a person located in a non-taxable territory i.e. outside India, to a non-taxable online recipient, would be liable to tax in the hands of the supplier. In other words, the supplier would be responsible for collection and remittance of Integrated GST to the Central Government.

Further, the Central Government, vide notification No. 9/2017-Integrated Tax (Rate) dated 28th June 2017 also excludes OIDAR services from the 'exemption list'. The said Notification in a summarized form read as - Services received from a provider of service located in a non- taxable territory by -

a person located in a non-taxable territory:

Provided that the exemption shall not apply to -

OIDAR services received by persons specified in entry (a) or entry (b); or

In other words, item no. (i) and (ii) are taxable.

Whether an 'Intermediary' also to be treated as a 'Supplier'

Yes. Subject to certain conditions, an intermediary located outside India who facilitates the supply of such service to an online recipient in India will be treated as the supplier of the said service.


1. If such intermediary's, invoice expressly identifies the service in question/ its supplier in a non-taxable territory.

2. If such intermediary neither collects or processes payment nor is responsible for the payment between the non-taxable online recipient and the supplier of such services.

3. The terms and conditions of the supply are not set by the intermediary involved in such supply of services

Business-to-Business (B2B) Transactions

B2B transactions with respect to OIDAR services will be taxable in the hands of the recipient under reverse charge mechanism (RCM).

Tax Incidence - In a summarized from 

Service Recipient




Tax Liability lies on

Supplier of Service (under FCM)

Recipient(under RCM)

Recipient (under FCM)

Recipient of service & Taxable territory

Recipient of service will be considered as situated in a taxable territory if any two of the following conditions are satisfied. They are -

1. Address of recipient
2. Billing address
3. Internet protocol address
4. Bank of recipient
5. Country code of SIM card
6. Fixed line used by recipient

An indicative list of OIDAR Services

1. Documents automatically emailed by provider's system - SBI Credit Card Statement
2. Documents or photographs automatically downloaded from a website - screensavers etc.
3. Online course with pre-recorded video and downloadable study material, etc.
4. Web-hosting including a webpage, Remote systems administration etc.
5. Supply of images, text and information and making available of database etc.

Comprehensive list of not OIDAR Services

E - Supply of goods.
E - Supply of physical books, newspapers or journals, etc.
E - Supply of services of lawyers and financial consultants.
E - Ticket booking services, accommodation or car, etc.
E or Online courses, where the content is delivered by a teacher through internet mode.


For OIDAR Service Providers Located in India

Required to file monthly returns such as GSTR-1, GSTR-2, GSTR-3 and annual GST return.

For OIDAR Service Providers Located Outside India

Required to file monthly return in Form GSTR-5A on or before the 20th of each month.

Equalization levy or Google Tax

Indian online advertising services companies are required to pay recently introduced 'Equalization levy' @6 percent under Income Tax provisions.  Therefore, both GST, as well as equalization levy, would be applicable.


The spread of digital economy poses challenges for both domestic as well as international taxation domains. To name few, the digital economy is uniquely relied on intangible assets, the massive usage of data and the difficulty of determining the jurisdiction in which value creation occurs.

The author is a budding tax law professional and can also be reached at


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