Foreign companies will have to pay GST from October 1

Ahmedabad: Foreign companies like Netflix, Spotify, Hotstar, which provide digital services on a large scale to Indian users, will have to comply with the strict Goods and Services Tax rules from October 1. These companies will have to pay GST at the rate of 18 percent irrespective of the purpose of their services. The decision will also levy tax on edtech companies including Facebook, Google, X (formerly known as Twitter).

Until now, under the unregistered GST, foreign companies were exempted from tax for providing services for non-commercial purposes to customers such as central-state governments and the general public. The Central Board of Indirect Taxes and Customs has notified new rules in this regard. Accordingly, there will no longer be any tax exemption for Online Information and Database and Retrieval Services (OIDAR). Such services will also have to be taxed from October 1. Along with this, CBIC has clarified exemption from 5 percent integrated GST on goods imported by sea freight.

According to tax officials, such companies which sell services through channel partners are not covered under GST as GST is not required to be paid for providing services to customers who are not registered under GST but once the OIDAR rules are notified, all sources of income from services are covered by GST. Scope will come in and compliance loopholes in the digital sector will be eliminated.

The official said that apart from online education services, gaming and advertising which were earlier argued to be excluded from the scope of OIDAR services will now come under the revised definition of these services. The scope of OIDAR covers cloud services, e-books, advertisements, movies, music, software, data storage and online/online gaming services provided through the Internet.

Any foreign supplier providing such services to Indian users directly or through its representative in India has to follow a simple registration process under the GST law. Along with this they have to pay consolidated GST at the rate of 18 percent in return for services. Experts say that OTT platforms, social media platforms, etc. are earning big from Indian consumers.