Freemium models are a popular way for foreign apps to quickly attract a large user base in India. However, when these apps provide automated digital services, they may fall under OIDAR rules in India. Many foreign founders assume that offering free plans means GST compliance is not required. In practice, this assumption often leads to issues. When users are located in India and the core service is digital, the law treats the activity as a taxable supply. This makes it essential for foreign apps to understand how freemium models interact with OIDAR registration requirements.
OIDAR stands for Online Information and Database Access or Retrieval. Under Indian GST rules, it covers digital services delivered online with minimal human involvement.
Examples of OIDAR services include:
SaaS tools such as CRM and project management apps
Cloud based storage, email automation, workflow tools
Digital content, paid filters, templates, and media libraries
Online learning platforms that deliver automated courses
Mobile apps that offer digital upgrades or in app purchases
When a foreign app provides such services to Indian users, OIDAR rules apply. This is true even if the base service is free. OIDAR is determined by the nature of the service, not by its pricing structure.
GST Council Flyer on OIDAR (www.gst.gov.in)
Freemium models create a common misunderstanding. Founders often believe that if the basic service is free, GST is not involved. In practice, this is where most compliance issues begin.
1. Paid upgrades convert free users into taxable recipients
A freemium app becomes taxable the moment an Indian user pays for any premium feature. One upgrade is enough for the service to fall under OIDAR rules.
2. No turnover threshold for foreign apps
Foreign apps do not get a GST threshold. OIDAR registration becomes compulsory from the first rupee earned from an Indian user.
3. User location decides the tax
If the user is in India, the place of supply is India. Server location or payment gateway does not matter. Paid Indian users require IGST collection and GSTR 5A filing.
4. 2023 changes widened OIDAR coverage
After the 2023 clarification, even partly automated or hybrid digital services can fall under OIDAR. Most freemium tools now fit this definition.
5. Payment channel does not remove liability
Whether payment comes through Apple, Google Play, Stripe, or any foreign gateway, GST still applies if the subscriber is in India.
Once OIDAR rules apply, the following obligations become mandatory.
1. GST Registration via Form REG 10
Foreign apps must register under OIDAR rules using Form REG 10 on www.gst.gov.in.If the company has no presence in India, it must appoint an authorized representative in India.
2. Monthly Filing of GSTR 5A
Every month, foreign OIDAR providers must file GSTR 5A with details of:
Indian users
Subscriptions
Value of taxable supply
IGST collected and paid
Even if there are no new sales in a month, a nil return is required.
3. GST Collection Obligations
For B2C: Indian users, the foreign app must collect and pay IGST.
For B2B: Users with a valid GSTIN, tax is paid under reverse charge by the Indian business.
4. No Input Tax Credit Allowed
OIDAR registrants cannot claim ITC, so taxes paid become an expense.
5. Record Keeping Requirements
Foreign apps must maintain details such as:
User billing addresses
IP logs
Invoices
Payment method details
Subscription history
These records support compliance during audits or GST notices.
Based on compliance patterns that Ebizfiling has observed in the last few years, the most common risks include:
Tax authorities issue notices for non-registration after detecting India-based payments.
Late filing penalties accumulate when GSTR 5A is missing.
IGST demands include interest from the start of supply.
Apps risk suspension of paid features for Indian users.
Refunds or account restrictions may occur on digital marketplaces.
For fast-growing foreign apps, these issues interrupt business momentum and reduce trust among Indian users.
We review your freemium model and confirm whether OIDAR applies.
We help register your app under OIDAR using Form REG 10.
We assist in appointing an authorized representative in India if required.
We manage GSTR 5A filing every month and ensure consistency.
We help maintain compliance records such as invoices and user data.
We support you in responding to any GST notices from authorities.
Freemium models are smart for user acquisition, but foreign apps must understand that Indian GST rules look at the nature of the service, not the pricing tier. Once paid features reach users in India, OIDAR registration becomes essential. To avoid compliance risks, foreign founders should treat India as an active tax jurisdiction and prepare accordingly. Ebizfiling supports them through straightforward and reliable compliance services.
OIDAR Compliance Roadmap for Foreign Startups
GST Registration for OIDAR Service Providers in India
Why User Location Matters for OIDAR India?
No. If you never charge an Indian user and do not monetise through advertisements, GST may not apply. However, once paid features, subscriptions, or upgrades are introduced, OIDAR rules become applicable.
OIDAR registration becomes mandatory even if only one Indian user makes a payment. Foreign apps do not get any minimum turnover exemption under OIDAR provisions.
In some cases, platforms may handle GST collection, but the legal responsibility remains with the foreign app if the platform is not treated as the supplier. Your commercial and contractual model must be reviewed carefully.
An 18 percent IGST rate is applicable to most OIDAR and digital services consumed by users located in India.
User location is identified using indicators such as billing address, IP address, bank or card details, and device or SIM information to confirm that the user is located in India.
Ignoring OIDAR registration may lead to GST notices for short payment of tax, along with interest and penalties imposed by the tax authorities.
No. OIDAR registrants are not eligible to claim Input Tax Credit under Indian GST laws.
Yes. In-app purchases are treated as a digital supply to Indian users, which makes OIDAR registration mandatory for foreign apps.
Yes. If an Indian business entity with a valid GSTIN purchases the service, GST is paid by the Indian buyer under the reverse charge mechanism.
Ebizfiling manages OIDAR registration, monthly GSTR-5A filings, record maintenance, and responses to GST notices, helping foreign app owners remain fully compliant.
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