Clarification on the Place of Supply for Online Services Supplied to Unregistered Recipients |Circular No. 242/36/2024-GST| dated December 31, 2024|

The Government of India, through the Ministry of Finance’s GST Policy Wing, has issued Circular No. 242/36/2024-GST, dated December 31, 2024. This circular addresses the non-compliance in recording the correct “place of supply” on invoices for online services provided to unregistered recipients. The issue stems from the misinterpretation of provisions under Section 12(2)(b) of the Integrated Goods and Services Tax (IGST) Act, 2017, alongside Rule 46 of the Central Goods and Services Tax (CGST) Rules, 2017.

Key Issues Addressed:

1. 1. Incorrect Declaration of Place of Supply: Suppliers have been erroneously recording the location of the supplier instead of the recipient’s State on invoices, resulting in revenue misallocation among states.

1. 1. Mandatory Requirements for Suppliers:
      
      • • All suppliers of online services to unregistered recipients must record the recipient’s State name on the tax invoice.
      • • The place of supply must correspond to the location of the recipient if the recipient’s address is available.

Legislative Framework:

1. 1. Definition of Online Information Services: As per Section 2(17) of the IGST Act, “Online Information and Database Access or Retrieval Services” include services mediated through information technology, such as internet advertising, cloud services, digital content distribution, and online gaming (excluding online money gaming).

1. 1. Place of Supply Provisions:
      
      • • For services to unregistered recipients:
          

           

          • • The place of supply is the recipient’s location if their address is available.
          • • Otherwise, it defaults to the supplier’s location.

1. 1. Mandatory Tax Invoice Details: Rule 46 of CGST Rules mandates including the recipient’s State name on invoices, especially for services supplied electronically or through online platforms.

Clarifications and Compliance Expectations:

• • Applicability: The clarified provisions apply universally to all online services supplied to unregistered recipients, including subscription-based services (e.g., OTT platforms, digital publications) and other digital transactions.

• • Recording Recipient’s State:
    
    • • Suppliers must ensure mechanisms are in place to collect and record the recipient’s State name before supplying services.
    • • Failure to comply may lead to penalties under Section 122(3)(e) of the CGST Act.

Implications and Recommendations:

This circular underscores the importance of accurate invoicing to ensure proper tax revenue distribution among states. Businesses engaged in supplying digital services should take immediate steps to align their invoicing practices with these guidelines. Furthermore, the GST authorities encourage the issuance of trade notices to spread awareness of these updates. Click here for original circular