Is GST Applicable on Services Provided by Foreign Entities in India?
💼 Introduction
India’s Goods and Services Tax (GST) regime, introduced in 2017, revolutionized the country’s indirect taxation system. But when it comes to foreign service providers, the question arises: Is GST applicable on services provided by foreign entities in India?
The answer is yes—but the liability, mode of payment, and compliance process differ based on several factors such as the nature of the service, recipient, location of supplier, and presence of a permanent establishment in India.
Let’s unpack the rules, responsibilities, and practical implications of GST on cross-border services in India.
🌍 What Are Cross-Border Services?
Cross-border services refer to services provided by a foreign supplier (outside India) to a recipient located in India. These may include:
💻 Digital and software services
☁️ Cloud computing & hosting
🎯 Online advertising
📊 Data analytics or consulting
🎓 E-learning platforms
🏢 Management, legal, or financial services
📌 Applicability of GST on Foreign Services
✅ Yes, GST is applicable on most services imported by Indian entities or individuals.
Under Section 7(1)(b) of the IGST Act, 2017, the import of services is considered a supply and is taxable.
🚨 What qualifies as "Import of Services"?
As per Section 2(11) of the IGST Act:
✔️ The supplier is located outside India
✔️ The recipient is located in India
✔️ The place of supply is in India
✔️ The transaction is for a consideration
If all the above conditions are met, GST is chargeable.
🧾 Categories of Services and Their GST Treatment
🏢 1. B2B (Business to Business) Services
✅ When services are provided by a foreign company to a registered Indian business, GST is applicable under the Reverse Charge Mechanism (RCM).
🔁 RCM means the recipient (Indian company) must pay GST directly to the government, instead of the foreign supplier charging GST.
Examples:
Subscription to foreign SaaS platforms
Import of professional or legal services
International consulting services
🧮 GST Rate: Usually 18% (standard rate), but may vary based on the service.
📤 The Indian recipient can claim Input Tax Credit (ITC) on the GST paid, provided it's for business use.
👥 2. B2C (Business to Consumer) Services
When services are provided by a foreign entity to an individual consumer in India (not registered under GST), the foreign entity may be liable to register and pay GST.
🌐 3. Online Information and Database Access or Retrieval Services (OIDAR)
This category is crucial for foreign digital service providers such as:
📺 Streaming platforms (Netflix, Spotify)
🖥️ Software downloads
💬 Online chat or webinar services
📚 E-books or e-learning
📜 As per Section 14 of the IGST Act, foreign suppliers providing OIDAR services to unregistered individuals in India are required to register under GST in India and collect and pay GST themselves.
✅ Conditions for OIDAR GST Applicability:
✔️ Foreign supplier
✔️ Indian recipient is unregistered
✔️ Service delivered over the internet
✔️ Automated and minimal human intervention
GST Rate: Typically 18% on the value of services.
📄 Registration Requirements for Foreign Service Providers
🔹 Foreign Companies (OIDAR Providers)
📌 Must obtain a GST registration in India (Form GST REG-10)
📌 Appoint a representative in India or register directly from outside
📌 File monthly GST returns (Form GSTR-5A)
📌 Collect and deposit IGST @ 18% on each invoice
🔹 Indian Recipients under RCM
📌 No need for foreign service provider registration
📌 Indian recipient must pay IGST under RCM
📌 Can claim ITC if services are used for business
📊 Real-World Examples
✅ Example 1: B2B (Reverse Charge)
Scenario: A UK-based software firm provides a subscription service to an Indian IT company.
GST Treatment: Indian company pays 18% IGST under RCM and claims input credit.
✅ Example 2: OIDAR (Direct Taxation)
Scenario: An Indian individual subscribes to a US-based online streaming service.
GST Treatment: The foreign company must collect 18% GST and pay it to the Indian government via GSTR-5A.
✅ Example 3: No GST
Scenario: Free online content or pro bono consultation by a foreign entity.
GST Treatment: No GST, since no consideration is involved.
🛑 Penalties for Non-Compliance
If a foreign company fails to register and pay GST when required:
💰 Fines up to 10% of the tax due or ₹10,000 (whichever is higher)
🚫 Blacklisting or deactivation of GSTIN
🔍 Investigations by tax authorities
📑 Key Compliance Checklist
| Task | Responsible Party | Required For |
|---|---|---|
| GST Registration (REG-10) | Foreign OIDAR Provider | B2C OIDAR services |
| GST Filing (GSTR-5A) | Foreign OIDAR Provider | Monthly |
| Reverse Charge IGST Payment | Indian Business | B2B imports |
| Input Tax Credit Claim | Indian Business | Post IGST payment under RCM |
| Tax Invoice with GST | OIDAR Provider | Mandatory for each B2C supply |
⚖️ Relevant Legal Provisions
| Law / Section | Description |
|---|---|
| Section 7(1)(b), IGST Act | Defines import of services as supply |
| Section 13, IGST Act | Determines place of supply for services |
| Section 14, IGST Act | OIDAR services GST applicability |
| Rule 64, CGST Rules | Filing of GSTR-5A |
| Section 2(11), IGST Act | Defines Import of Service |
💡 Expert Tips
✅ Classify your service correctly (B2B or OIDAR).
✅ Maintain proper documentation and invoices.
✅ Appoint a GST consultant or tax advisor if you're a foreign service provider.
✅ Monitor thresholds and changes in GST law applicable to cross-border transactions.
🏁 Conclusion
Yes, GST is very much applicable on services provided by foreign entities in India, but the liability depends on the type of service and recipient:
📌 B2B: Indian recipient pays under Reverse Charge Mechanism
📌 B2C (OIDAR): Foreign supplier must register, collect, and pay GST
📌 Others: Exemptions may apply if there’s no consideration or service is outside GST purview
The Indian government is tightening regulations around cross-border digital services and ensuring that foreign companies contributing to the Indian digital economy also contribute to the tax system. Therefore, staying compliant is essential to avoid penalties, ensure smooth operations, and build credibility in the Indian market.
Created & Posted by Ravi
Article at TAXAJ
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