Google, Facebook, edtech firms may face 18% IGST

India’s tax landscape undergoes a major shift as tax exemptions for overseas online service providers end, introducing an 18% IGST. Tech giants like Google and Facebook, along with edtech firms, face new tax implications.

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Starting from October 1, 2023, overseas online information and databases access retrieval service (OIDAR) providers, including Facebook, X, Google, and numerous edtech companies, may face an integrated goods and services tax (IGST) of up to 18% on services provided to both the government and individuals in India. The exemption from IGST that these services previously enjoyed will be discontinued, according to a notification issued by the Central Board of Indirect Taxes and Customs.

According to a  senior official, “This will cover overseas companies providing advertising, cloud services, music, subscription-based service, online education and even information to all individuals and government irrespective of whether it is used for personal or business purposes.” Previously, taxes were only applicable to business-to-business (B2B) services.

OIDAR services, defined as services delivered via IT over the internet with minimal human intervention, encompass various activities such as online advertising, cloud services, sale of e-books, movies, music, software, digital content supply, data storage, and online gaming.

The Finance Act of 2023 expanded the tax scope of OIDAR services and altered the definition, eliminating the requirement for minimal human intervention. Additionally, it included non-registered recipients in section 16 of the IGST Act, making service providers responsible for tax collection.

This notification is intended to remove any ambiguity introduced by the 2023 Finance Act, which exempted individuals and government entities but now subjects them to taxation. It also mandates that providers maintain a user database.