Specifics of Taxation of Electronic Services in India

1) What qualifies as electronic services for tax purposes? Is there a list of such services?

In India, the ‘Electronic Services’ have been defined as ‘Electronic Commerce’ (or, generally called as ‘E-Commerce’) under the Central Goods & Services Act, 2017 (“GST Act”). The term ‘Electronic Commerce’ means supply of goods or services, including digital products over digital or electronic network. 

Thus, to qualify as ‘E-Commerce’ or electronic services, supply of such goods or services must involve: 

• sale, transfer, exchange, lease or provision of goods or services;
• be delivered over a digital or electronic network (i.e. via internet-based platforms like mobile apps, cloud systems, websites, servers, or emails). 

While there is no specific list of services that would qualify as ‘electronic services’ or fall within the meaning of ‘Electronic Commerce’, however, for the purposes of fixing liability to pay the tax, the government has specified the following in respect of which the tax is paid by the Electronic Commerce Operator (which otherwise is required to be paid by the supplier of goods or services):

• Transportation of passengers by radio-taxi, motorcab, maxicab, motor cycle, or any other motor vehicle.
• Transportation of passengers by omnibus, where the supplier is not a company.
• Accommodation services in hotels, inns, guest houses, clubs, campsites, etc., where the supplier is unregistered.
• Housekeeping services such as plumbing, carpentry, etc., where the supplier is unregistered.
• Restaurant services (other than those at specified premises).
• Local delivery services, where the supplier is unregistered.

2) Is a foreign company providing services electronically required to register for VAT purposes?

Yes. The law under GST Act (corresponding to VAT) mandates an E-Commerce Operator to obtain registration. Such  E-Commerce Operator also include such operators that: 

• provide online information and data base access or retrieval services from outside India to a person in India;
• Provide online money gaming from a place outside India to a person in India.

3) How is the place of supply of electronic services determined?

As a general principle, the place of supply of goods is the place where the goods are delivered. 

The place of supply of services in respect of goods from a remote location by way of electronic means, is the place where the goods are situated at the time of supply of services. 

In cases of supply of online information and database access or retrieval services, the place of supply is the location of the recipient of services.

4) What VAT rates apply to electronic services?

Generally, the GST is levied at 18% of the value of the supply of goods/services. However, India follows a Harmonized System of Nomenclature whereby different rates of GST on various goods and services under each such HSN have been prescribed. The different rates of GST prescribed are 0% (NIL GST), 5%, 12%, 18% and 28%.

5) Are there any thresholds for mandatory tax registration?

Generally, the threshold for GST Registration is Turnover of INR 20,00,000 (INR Twenty Lakhs or INR 2 Million).

However, in cases of E-Commerce Operators, GST registration is mandatory.

6) What reporting and filing obligations apply to providers of electronic services?

The reporting and filing obligations for electronic service providers (OIDAR providers) under Indian GST law depend entirely on where the provider is based and who they are selling to. 

As a first step is to obtain the registration in India under the GST Act  using Form GST REG-10.

Thereafter, regular and monthly reportings of the sales/services, such as: 

• Form GSTR-5A - for supply of services from outside India to a person in India;
• Form GSTR-8 - for Tax Collected at Source;
• Form GSTR-1 - Return of Outward Supplies;
• Form GSTR-3B - Summary Return & Tax Payment.

7) How are services supplied through marketplaces and platforms taxed?

There is no distinction carved out between an E-Commerce Operator acting as a ‘marketplace’ and an E-Commerce Operator acting as the supplier of goods by itself.

Generally, the E-Commerce Operator is deemed as the supplier and has been made responsible for payment of taxes, and also registration, return filing, and other payment obligations, in respect of certain notified category of services.

However, in case of a pure ‘Marketplace’, i.e. if a website only lists the name of the vendors or generates the lead or shares the number of the service providers say a plumber, then it would not be obligated to pay the tax as a “deemed supplier” as they are just facilitating the supply but are not engaged in allocation of the service provider or collection of payments. 

Therefore, the taxability of an E-Commerce Operator acting as a ‘marketplace’ would also depend upon the nature, activity and ultimate supply of goods or services being provided by the concerned  E-Commerce Operator.

8) What are the risks and penalties for non-compliance with tax rules?

The Indian GST framework operates as a technology-driven, strictly locked compliance ecosystem. Failing to adhere to the rules for electronic or platform services are no longer merely penalised, but could have severe impact on business operations.

Consequences of non-compliances could lead to:

• imposition of late filing fees;
• penalties amounting to Rs.10,000/- to 10% of turnover;
• interests @ 18% per annum;
• suspension of GSTIN (registration number obtained under GST Act;
• Locking of Input Tax Credit.

Authors: Shashank Agarwal, Bhavya Khatreja, Abhishek Attri