The new age of Invisibles – GST Implications!!

By CA. Gaurav Gupta

In this COVID period when most of the businesses are closed due to lockdown, there are companies which are emerging as the new leaders in this lockdown period.  This includes companies which are providing communication platforms like meeting rooms, webinars, etc.  Others include those which are providing online gaming solutions, online socialising apps, online marketing, online office management tools, online monitoring, etc.  However, these new companies may be mostly started anywhere in the world and while assesses are using such technologies, they remain ignorant about the liabilities which may fall on them in terms of using such applications.  While the exposures are numerous including security issues, we shall focus only on issues which related to their liability under GST, both from the supplier as well recipient perspective.

Online automated Services: Many companies have purchased licenses from online meeting room applications like Zoom, gotowebinar, Google Hangout, etc.  They have also taken up space from online storage service providers, taken cloud services etc.  Also, individuals have paid much in these days to companies who are providing online content in terms of movies, music, books, etc.  Such supplies qualifies as online information and database access or retrieval services as Section 2(17) of IGST Act, 2017 defines the term as under:

(17)         “online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as,—

(i)      advertising on the internet;

(ii)     providing cloud services;

(iii)    provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet;

(iv)    providing data or information, retrievable or otherwise, to any person in electronic form through a computer network;

(v)     online supplies of digital content (movies, television shows, music and the like);

(vi)    digital data storage; and

(vii)   online gaming;

Treatment to be accorded when such services are taken by different class of recepients are as follows:

• In case of registered recipients: such registered recipient would be liable to pay GST under reverse charge.
• In case of unregistered recipients: Section 14 of the IGST Act, 2017, provides that supply of OIDAR services by any person located in a non-taxable territory and received by a non-taxable online recipient, the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services. “non-taxable online recipient” means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.  It is important to note that there may be entities who are liable to be registered but fail to obtain registration but since the section

Online non automated services: The liability under this segment can be divided in three brackets:

• Registered persons: In case of online non automated services, the liability shall be effective only in the case of registered recipients.
• Unregistered persons who are individuals and charitable entities: Such entities and individuals have been granted specific exemption vide entry 10 of Mega Exemption Notification No. 9/2017-Integrated Tax (Rate), which provides as under:

“Services received from a provider of service located in a non-taxable territory by—

Thus, in case of individuals importing services for personal use for eg, purchase of software license like videogame (which is not falling within OIDAR), obtaining designing services for home from outside India,  etc or in case of charitable entities when they obtain any services like consultancy for any of the activities which are charitable as per notification No. 12/2017-Central Tax (Rate).  Charitable activities has been defined in the said notification as under:

(r)           “charitable activities” means activities relating to—

(i)         public health by way of ,—

(A)       care or counselling of

(I)         terminally ill persons or persons with severe physical or mental disability;

(II)        persons afflicted with HIV or AIDS;

(III)       persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

(B)       public awareness of preventive health, family planning or prevention of HIV infection;

(ii)        advancement of religion, spirituality or yoga;

(iii)       advancement of educational programmes or skill development relating to,—

(A)       abandoned, orphaned or homeless children;

(B)       physically or mentally abused and traumatized persons;

(C)       prisoners; or

(D)       persons over the age of 65 years residing in a rural area;

(iv)       preservation of environment including watershed, forests and wildlife;

Thus, the said exemption is not available to all charitable institutions but for limited ones for limited purpose as stated above.  When any of the above specified person obtains any services (other than IODAR where tax liability has been shifted on supplier) for specified purpose from supplier located outside India and pays for it, no consequences remain on such persons.

• Other unregistered persons: Such persons don’t enjoy the aforesaid exemption and thus, would be required to obtain such registrations.  There are societies, charitable institutions, educational institutions, clinics etc. which are not falling in the above exemption and thus, when they subscribe to online services from a non resident supplier, they get liable to take registration and make payment of taxes on such supplies.  Even in case the employees, trustees or other persons make such payments to online platforms, and since the payments are made on behalf of such entities, such entities still remain liable for the payment under reverse charge.

Online coaching / teaching services: This category needed specific mention as certain persons are providing online coaching / teaching services using internet.  In such cases, the instructor is located in a country outside India and the persons receiving such training are located in India.  And thus, as per Section 13(3) of IGST Act, 2017, place of supply shall be the location where the services are actually performed. Where educational services are supplied when the instructor (supplier) is outside India and the customer is in India the supply does not fulfil the performed based service criterion. That is because the supply does not constitute a physical performance. Section 13(3) requires the physical presence of the individual (recipient or on behalf of recipient) with the supplier for the supply of services and thus, since the person is not physically present with the supplier (considering online presence with the instructor is not physical presence) shall not be applicable and thus, it would fall within the ambit of Section 13(2) of IGST Act, 2017 and place of supply in such cases would be location of recipient.  Thus, while all individuals taking classes (other than OIDAR) like Yoga, arts, etc. from a tutor outside India would be exempt, any individual taking online classes for any course (other than OIDAR) on behalf of a business entity (where expenditure is borne by such business entity) would be taxable and GST on such transaction would be paid by the business entity.