India: Impact Of GST On Digital Entertainment Storefronts

Last Updated: 8 October 2018
Article by Shubham Borkar

There are on-demand Digital Entertainment Storefronts (DES) like Hungama, Saavn etc. which are engaged in providing music on demand services and are becoming increasingly popular among internet users in India who wants to listen songs on the go. Some of them are free, however some charge subscription from the listeners. Now, there arises a question as to how would GST be levied upon such "supply of digital content" when the supplier is in India vis-à-vis when the supplier is situated outside India. To understand this we need to first understand whether these large entertainment storefronts are qualified under OIDAR services and to answer that question one has to understand what OIDAR is and what all services come under the ambit of OIDAR.

To begin with, OIDAR stands for (Online Information Database Access and Retrieval). It is a category of service in which there is no physical interface between the supplier and of the service i.e. the transactions of digital goods and services are mainly done through the medium of internet. The IGST Act defines OIDAR as "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 involving minimal human intervention." Examples of OIDAR would include supply of music, films, accessing or downloading of music, jingles, excerpts, ringtones or other sounds on mobile phones or computers. Therefore, DES like Hungama, saavn etc. are qualified as OIDAR services and the criteria for determining GST applicable on them is discussed below:-

APPLICABLE GST ON THE SALE OF DIGITAL GOODS AND SERVICES

The current rate of GST applicable on the sale of digital goods and services is 18%. However, the manner in which GST is levied on the supply of digital goods and services would depend on whether the supplier is based in India or outside India. This would now lead us to two situations :-

IF BOTH THE SERVICE SUPPLIER AND SERVICE RECIPIENT ARE BASED IN INDIA

In such cases, the applicable GST would remain same for both OIDAR as well as non-OIDAR services i.e. the service supplier shall collect GST @ 18% from the service supplier. However, it is mandatory on part of the service supplier to be registered in India. The service supplier has to deposit the GST with the Govt. of India after the collection of GST from the service recipient.

IF SERVICE SUPPLIER IS BASED OUTSIDE INDIA AND SERVICE RECIPIENT IS BASED IN INDIA

In such cases, the applicable GST would depend on the kind of service i.e. OIDAR or Non-OIDAR services.

OIDAR PRODUCTS AND SERVICES

For OIDAR products and services, the applicable GST on transactions of digital goods and services would be Indian GST. However, the manner of the levy of GST will be different depending on the business entity being registered or not under GST laws.

If the Service Recipient is a business entity registered under GST then the service recipient is responsible for the payment of GST to the government i.e. the liability of service recipient to pay tax is under the Reverse change Mechanism.

If not then it is the responsibility of the service to collect GST from the service recipient and deposit the same with the government. However, there are certain things to be kept in mind:-

  • It is mandatory for the service supplier to get registered under the GST laws even if the person does not have any business establishment in India.
  • If the service supplier has any entity in India representing such overseas supplier in the taxable territory, it is required that the entity must register itself under GST laws and pay GST to the government on behalf of the supplier.
  • If the service supplier does not have any representative in India, he is required to appoint a person in India for the payment of GST.
  • If any intermediary located outside India is providing services on behalf of the service supplier, he is required to get himself registered under Indian GST laws.

WHY GST IS APPLICABLE ON SERVICE SUPPLIERS LOCATED OUTSIDE INDIA?

The primary reason for levying GST on OIDAR service suppliers located outside India is to bring them par with the service suppliers located in India. Earlier, the service suppliers located outside India were not required to pay GST, thereby, getting unfair tax advantage over the suppliers located in India. The taxes on OIDAR services were levied under the service tax regime w.e.f. 1st December, 2016 and have also been levied under the GST regime w.e.f. 1st July, 2017. The government by levying GST on OIDAR services supplied located outside India has tried to provide a level playing field to service suppliers located in India.

TEST FOR DETERMINING WHETHER "SERVICES" QUALIFY AS OIDAR OR NOT

Services
Whether the service is provided over the internet or an electronic network
Whether the service is automated and cannot be ensured in the absence of technology
Whether this is qualified as an OIDAR service
If the provider has manually e-mailed PDF document
Yes
No
No
PDF document is mailed automatically by the provider's system
Yes
Yes
Yes
Automatic download of the PDF document from the website
Yes
Yes
Yes
Automatic download of the stock photographs
Yes
Yes
Yes
Online courses consisting of downloadable PDF's and pre-recorded videos
Yes
Yes
Yes
Online courses consisting of downloadable PDF's and pre-recorded videos along with support from a live tutor
Yes
No
No
Contents which are individually commissioned and sent in digital format
Yes
No
No

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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