Whether commission retained by an overseas freelance marketplace is consideration for OIDAR service or intermediary service under the IGST Act?

[Mith Moh]

ABC, a company incorporated outside India, operates an online marketplace connecting Indian freelancers with overseas clients similar to platforms like Upwork, Fiverr etc. The platform enables freelancers to create profiles, list their services, communicate with clients, execute contracts, deliver work digitally, receive payments through an escrow/payment mechanism, and obtain invoices through the platform.

ABC does not charge any fee for registration, profile creation, or listing services. Instead, it deducts a commission (e.g., 10% of the contract value) only when a contract between the freelancer and the client is successfully concluded and payment is received. Separate invoices are generated by ABC on the freelancer for the commission retained in addition to main invoice which is between freelancer and client.

1. Can the commission retained by ABC be regarded as consideration for an OIDAR service under the amended definition in Section 2(17) of the IGST Act OR does the fact that ABC also facilitates the underlying supply necessarily result in its classification as an intermediary service, or can OIDAR be regarded as the more appropriate classification for the purpose of determination of place of supply prior to 30.03.2026?

Whether place of supply is determined by Section 13(2)(b) or 13(12) of IGST act prior to 30.03.2026?

[Raam Srinivasan Swaminathan Kalpathi]

Dear Querist

This correspondent is of the opinion that the service provided are OIDAR services simplicitor. POS will be as per provisions of Section 14 of the IGST Act. The OIDAR service provider will have to take registration applicable to Non-Resident Taxable Person (NRTP). If the service recipient is unregistered the service provider will have to collect GST and remit to the department. Also, if the recipient of your services is registered then the recipient will have to remit tax on RCM.

[Shilpi Jain]

Is not this more like a E-com platform rather than a OIDAR?

[Mith Moh]

Madam,

In my view, the platform qualifies the definition of both e-commerce operator and OIDAR. Section 9(5) prescribes the categories wherein the e-commerce operator will be the deemed supplier. However, the marketplace facilitation service is not specified in any of the categories therein, hence the GST on the commission charged, in case to an unregistered person would have to be paid by the unregistered person unless he is a "non-taxable online recipient" as Section 24(iii) mandates every person required to pay under reverse charge to take a registration. Hence, every freelancer (in this case) irrespective of the threshold would have to take registration just to pay under RCM. That defeats the legislative intent. Hence, I feel it should come under the category of "OIDAR" than an intermediary, as place of supply w.e.f. 30.03.2026 is the location of recipient

[KASTURI SETHI]

Dear Querist,

First of all, you are to identify exact nature of service (classification) here. You must peruse CBEC's Circular No. 202/12/2016-ST dated 09.11.2016. This circular throws light on what qualifies OIDAR service and what does not qualifies OIDAR service. Although this circular pertains to Service Tax law, yet this is very useful in identifying exact nature of service. This circular is foundation for OIDAR service in IGST Act.

The question of determination of place of supply will arise thereafter.

[Mith Moh]

Dear Sir,

I have examined CBEC Circular No. 202/12/2016-ST dated 09.11.2016. My understanding is that the Circular was issued in the context of the pre-GST OIDAR definition under the Finance Act, 1994, which was substantially similar to the original definition in Section 2(17) of the IGST Act. The Circular primarily distinguishes services that are essentially automated with minimal human intervention from those where human expertise predominates, such as legal advice by email or live online teaching.

However, the present issue concerns the amended definition of OIDAR under Section 2(17) of the IGST Act, as substituted by the Finance Act, 2023 (effective 01.10.2023). The amendment deleted the conditions that the service must be "essentially automated" and involve "minimal human intervention". The current definition only requires that:

(i) the service is delivered over the internet or an electronic network; and

(ii) its supply is impossible to ensure in the absence of information technology.

In the present case, the service under examination is not the freelance services supplied by the freelancer to the client, but the commission-based platform service supplied by Platform to the freelancer. The platform provides the digital marketplace, profile hosting, matching, messaging, contract management, payment processing, invoicing and related infrastructure entirely through an electronic platform. The issue is whether this platform service, in light of the amended definition, qualifies as OIDAR despite also exhibiting characteristics of an intermediary service.

I therefore agree that classification is the first step. My difficulty is that the 2016 Circular explains the position under the pre-amendment definition, whereas the present case has to be examined under the post-2023 definition, which is materially wider. I have not been able to find any CBIC clarification or judicial precedent analysing online freelance marketplace platforms under the amended definition.

AI Summary

Online marketplace commission classification depends on whether digital platform facilitation is OIDAR or intermediary service for place-of-supply treatment.
Commission-based online freelance marketplace services require classification by reference to the distinct digital platform service supplied to freelancers. The service may be characterised as OIDAR where it is delivered through an electronic network and cannot be ensured without information technology, notwithstanding its role in facilitating freelance contracts. A competing characterisation is intermediary service, making the exact nature of the facilitation decisive for place-of-supply treatment. The discussion records differing views on OIDAR treatment, registration, reverse charge and tax collection, without identified clarification specifically concerning such platforms under the amended OIDAR definition.