India - Scope of taxable online services affecting foreign service providers proposed to be broadened

India’s Union Budget 2023-24 presented to parliament on 1 February 2023 includes a proposal to significantly broaden the definition of “online information and database access retrieval (OIDAR) services” (OIDAR services) and the definition of a non-taxable online recipient (NTOR). If enacted, the proposed changes will affect foreign companies providing OIDAR services to persons in India and that currently are not registered under India’s Goods and Services Tax (GST) law.

Definition of OIDAR service

OIDAR is a category of services whose delivery is provided through and received by a recipient over the internet or via an electronic network. The nature of OIDAR services is such that they can be provided online from a remote location within or outside India. Examples of OIDAR include the provision of online advertising, content streaming services, downloading of e-books, accessing online databases and courses, etc. The following conditions currently must be satisfied for a service to be classified as an OIDAR service:

  • The service is delivered using information technology via the internet or an electronic network; and
  • The nature of the service is such that it is “essentially automated and involves minimal human intervention” and is impossible to supply in the absence of information technology.

It is proposed that the definition be revised to eliminate the condition that the supply of OIDAR has to be automated and involve minimal human intervention. This substantial broadening of the scope of the term would have the effect that any services provided online, irrespective of human intervention, would be treated as OIDAR services, thus bringing many new services within the scope of the OIDAR rules.

If the proposal is enacted, where a service is classified as an OIDAR service, the service provider would be required to register for GST purposes and collect GST on the transaction, file a GST return and pay the tax over to the Indian tax authorities.

Definition of NTOR

An NTOR is currently defined to mean a government, local authority, governmental authority, individual or any other person not registered and receiving OIDAR services for any purpose other than commerce, industry, or a business or profession.

The budget proposes to amend the definition of NTOR to mean any unregistered person receiving OIDAR services located in India’s taxable territory and to remove the condition that OIDAR services be received for purposes other than for commerce, industry, or any other business or profession. Further, the term “unregistered person” would include a person registered solely for the purpose of deducting tax at source under section 51 of the GST law (e.g., a central or state government or department thereof, local authority, government agency, etc.).

As a result of these changes, OIDAR services provided by a person outside India to a non-GST-registered person in India would be taxable and, in such cases, the OIDAR services provider would have to register for GST purposes and discharge the applicable GST on the supplies. Once the proposal is effective, the tax treatment of the supply of OIDAR services by a nonresident service provider would be as follows:


The proposed changes would significantly expand the scope of taxability of OIDAR services because the effect of the measures would be to bring any services provided online, regardless of human intervention, within the definition of OIDAR services. Nonresident suppliers of such services would have to register for India’s GST and discharge the applicable GST obligations.

Nonresident suppliers of OIDAR services into India should consider the following actions:

  • Assess the impact of the proposed changes on the tax positions taken;
  • Re-visit contractual arrangements with Indian customers and how these services are supplied;
  • Revise the contractual arrangements, if necessary; and
  • Plan to register for GST purposes in India and make any internal systems adjustments needed to help with GST compliance obligations.

Gunjan Prabhakaran
BDO in India