In recent months, around 40 to 50 additional offshore entities have registered with GST authorities, after an investigation revealed that they were not paying tax on online information supplies and services. database access or recovery (OIDAR), official sources indicated.

New registrations could lead to an increase GST revenue to the tune of a few hundred crores, the sources said.

OIDAR is a category of services provided via the Internet and received by the recipient online without any physical interface with the provider of these services. Examples include online advertisementcloud services, e-books, movies, music, digital data storage and online games are all part of OIDAR.

“The Directorate General of GST Intelligence (DGGI) has been making continuous efforts to create awareness among offshore entities (which provide OIDAR services) Indianational tax laws, so that they pay the required amounts tax amount,” an official said. “In many cases, we find that these entities are truly ignoring the law… so they register and pay taxes. »

Under the GST provisions, when foreign entities offer digital services to end-users in India, the tax liability falls on the foreign service provider in a non-taxable territory. These entities are required to register for GST and submit monthly returns detailing their sales in India while remitting applicable taxes. However, many fail to comply, often leading to significant financial penalties and legal repercussions for undisclosed transactions and failed tax payments, experts say.

The DGGI, in its annual report for FY24, had indicated that since the introduction of GST in July 2017, a total of 574 offshore entities have registered with the GST department. As a result, revenue collection from this sector increased from Rs 80 crore in FY18 to Rs 2,675 crore in FY24.

Regarding these offshore suppliers, it has also come to light that several of these suppliers are “ignorant of the law and, after clearly stating the legal situation, these suppliers agree to comply with the GST mandate”, the DGGI said in the report.

Sandeep Sehgal, tax partner, AKM Global, said the DGGI was making several efforts like sending emails to these service providers to create awareness and ask them to register. “The approach is commendable as they do not take harsh measures in the first cases and focus more on creating awareness,” he added.

Shareen Gupta, partner at JSA Advocates and Solicitors, said the provisions of OIDAR requiring offshore companies to pay tax in India also recognize “intermediaries” as persons liable to pay GST in India. “But due to the complex business models for services rendered via the online medium, the correct taxation and valuation of these services is often not identified. It is therefore important that the government provides clarification to help foreign entities to comply with the requirements of Indian law,” she said.

In its annual report, the DGGI highlighted that many offshore OIDAR service providers represent a “relatively untapped” sector with “enormous” revenue potential; innovative solutions are therefore essential to avoid revenue leakages.

Some experts say GST non-compliance by offshore OIDAR service providers is more pronounced in the online gaming sector. For offshore platforms offering online money gaming services, it is therefore imperative to understand and comply with the updated GST regulations, effective October 1, 2023, they say. “Penalties for evasion are severe, and platforms that fail to meet their obligations risk not only fines, but also the potential loss of access to one of the largest gaming markets in the world,” he said. said Ankur Gupta, Head of Indirect Tax at SW India.