India’s Ministry of Finance recently amended service tax rules related to online information and database access or retrieval (OIDAR) services.
The government said it is imposing a 15% tax on downloads and purchases of digital goods from offshore retailers.
Among the key changes are:
The changes mean that India has significantly widened the scope of service taxes for online activities by including an array of services provided with the use of technology into the definition of OIDAR and by bringing online services provided by overseas suppliers within the scope of taxation.
The changes appear to be in line with Action 1 of the base erosion and profit shifting (BEPS) Action 1 package of the Organisation for Economic Cooperation and Development. Action 1 addresses tax challenges of the digital economy.
India’s Central Board of Excise and Customs notes that OIDAR services cover those that are automatically delivered over the Internet, or an electronic network, where there’s minimal or no human intervention. In practice, this can be either:
Examples of OIDAR services include:
The onus for collecting the tax is on the provider. So, for example, if a person sitting in India downloads a Kindle book from Amazon, the retailer will have to collect the tax and pay it to the government.
This full circular is available here. The new tax is effective immediately.
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