The notification gives effect to the significant changes to the tax regime covering these non-resident digital service providers called 'Online Information Database Access and Retrieval (OIDAR).' In the Finance Act, the government had removed a tax exemption for import of OIDAR services for personal use and now the onus of collecting and making the tax payment to the Indian government falls on the exporter of service.

Under the earlier regime, in addition to the tax exemption on import of these services for personal use, the liability to remit the tax to the government was on the consumer if he was a GST registered person importing the service for business purposes. Given that it is difficult for the tax authorities in India to figure out who is importing these services for personal use and who is using it for business purposes, making the exporting firm liable to make the payment in the case of personal users makes tax collection easier.

Saurabh Agarwal, Tax Partner at EY explained that earlier these services from entities located in non-taxable territory rendered to Central government, state government, a government authority, or individuals for purpose other than business was exempt. However, now from 1 October, this exemption will not be applicable for OIDAR services, making it taxable. "This amendment specifies that the said exemption entry will no longer be applicable to OIDAR services starting from 1 October, 2023. Consequently, OIDAR services provided to the aforementioned persons are now liable to taxation," said Agarwal. The move is expected to help raise revenue for the government given that social media platforms, online search engines and other digital economy firms rendering services to Indian customers in a big way from their offshore subsidiaries are covered by this change.