Watch out, world.
India is on a mission to become a $1 trillion digital economy by 2024. That’s nearly triple the current size, and actually about the same size as the United States’ digital economy today.
What does that mean for you, the owner of a digital business in another country? It means potential customers, LOTS of potential customers. It means: get in on the market now.
According to predictions from the Asia-Pacific arm of Bain & Company, “there will be 600 million Indians with smartphones in five to seven years, each consuming content and transacting digitally.”
Thankfully, the country has sorted out its digital tax laws ahead of this monumental growth! The IGST Act of 2017 lays out special provisions for what India calls “Online Information Database Access Retrieval” services, or OIDAR. (The rules are simpler now, even if the title is not.?)
Here we’ll clearly lay out the tax policy for selling digital goods to Indian consumers. Tax rates, registration, filing returns — this article has it all.
India’s definition of digital goods: OIDAR
India employs a Goods and Services Tax of 18% on all digital goods. But, as is the case for every country with these tax policies, you first need to know how the government defines a digital good.
Turns out that India’s definition of digital goods, or OIDAR, is nearly identical to the European Union’s. A digital good is any product or service that relies on the Internet to function and is essentially automated with minimal human involvement.
So, India’s GST applies to electronic services such as:
- Online advertising
- Cloud-based services
- E-books and streaming content such as movies, music, software and other intangibles
- “Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network”
- Digital data storage
- Online gaming
This is just a list of examples, and it’s not complete by any means. If you’re in doubt about whether your product falls under OIDAR specifications, you should seek out a professional tax advisor within India!
If you’re curious how definitions of digital goods can vary from country to country, check out our post exploring the question, “What’s a digital good, anyway?”
How to comply with GST in India
The first step is to register with India’s GST. Legally you have up to 30 days to register for taxes after doing business in the country.
Oh yeah, all digital sales are subject to tax, so you must register. There is no tax registration threshold in India. Even if you make just one, tiny sale in the country, you should collect tax on the transaction and then pay it forward to the government. (Or use the reverse-charge mechanism, which we’ll get to in a minute!)
Register for GST in India
The good news is that the government offers a Simplified Registration Scheme for foreign businesses (also called “non-taxable suppliers”) to pay integrated taxes on their Indian sales.
In CBEC’s GST Portal, you file an application form electronically. The specific form for you is called:
GST REG-10: “Application for Registration for a person supplying online information and database access or retrieval services from a place outside India to a non-taxable online recipient”
Then a human GST officer reviews your application and approves it based on certain “conditions and restrictions,” which are mysteriously never named outright in any of the material I read. The officer then issues you GST REG-06, essentially a registration certificate. Finally, you’ll receive a GST Identification Number (GSTIN), which is 15 digits long.
Of course, you can choose a tax representative from within the country to handle all this for you, but it isn’t required by law.
Determine each buyer’s location
When making a sale, you must determine the location of your customer, to confirm they really are in India. You can do so by detecting and collecting specific “pieces of evidence”, at least two in agreement, that prove the customer’s country of residence. India accepts the following:
- The home or office physical address
- The credit card or debit card (“or store value card or charge card or smart card or any other card by which the recipient of services settles payment”) if issued by India
- The customer’s billing address
- The IP address of the device
- The address of the bank used to pay for the service
- The country code of the customer’s mobile phone SIM card
- The country code of the customer’s landline phone
India’s Central Board of Indirect Taxes and Customs doesn’t specify how long you need to keep this location evidence. In the EU, for example, you need to keep the records for ten years, just in case an auditor comes a-knocking. So, just to be safe, find a way to store this digital data for a while.
Determine if the buyer is a business or a private person
B2B transactions use the reverse-charge mechanism. This means the buyer is solely responsible for paying GST on their purchase. They file it along with their other taxes. You, as the supplier, don’t need to worry about adding tax on the sale.
The key is to verify that the buyer truly is a GST-registered business. Collect their GSTIN and verify it using the GST Portal’s verification tool. If correct, the site will display the business information of the buyer. If incorrect, the site will show an error, and you should re-contact the buyer to get the correct GSTIN.
For a thorough explanation, read about how the reverse-charge mechanism works.
On the other hand, if the buyer is a normal individual (B2C), then you should apply the 18% tax on the sale, and then be prepared to pay that money forward to the government when tax season rolls around.
Issue a GST-specific tax invoice
Here is what you must include on your invoices, sent within 30 days of the transaction.
- Your business’ name, address and GSTIN
- Unique invoice number
- Date of issue
- If the customer is GST-registered: the customer’s name, address and GSTIN or UIN
- If the customer is not registered: their name and address, along with the name of State and its code
- HSN code of goods or Accounting Code of services
- Brief description of goods or services
- Total value of supply
- Taxable value of supply, taking into account any discounts
- Tax rate (in this case, always 18% GST)
- Amount of tax charged
- If B2B, note that you’re using the reverse-charge mechanism
- Your signature or digital signature (or that of an authorized representative)
File your Indian GST returns monthly
Yep, monthly. This is required even if you don’t make any sales that particular month.
You can file and pay your GST returns through the CBEC GST Portal. As a foreign business supply OIDAR services within India, you should file tax form GSTR-5A. Submit this return within 20 days of the end of the month.
(Hey, at least you don’t need to file an annual return!)
How Quaderno can help to comply with the GST in India
Want to break into the Indian market before it explodes? But don’t want the huge tax headache that comes along with 600 million potential customers and monthly tax returns?
We designed Quaderno to take this tedious compliance off your plate — no matter where you sell, even in India! Quaderno will...
+ automatically charge 18% on the appropriate transactions
+ collect and store the customer location evidence for you
+ send automatic tax invoices that meet India’s requirements
+ AND keep track of how much GST you’ve collected. Our instant tax reports for India will making those monthly returns a breeze!
To give us a try, sign up for a free trial. We look forward to helping you!
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.