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GST on Advertisement Services in India / Advertising
Agencies' Concerns and the Government’s Clarification
By Yogesh Verma (CS LLB) / 2 min. read / GST Article
Background: Role of Indian Advertising Agencies
Indian advertising agencies provide a wide range of services
to both domestic and foreign clients. These agencies help clients promote their
products or services by creating advertisements, strategizing on media
planning, and purchasing media space such as TV slots, online ads, or print
placements. Foreign clients often rely on Indian advertising agencies to manage
their marketing campaigns in India, which include everything from creative
content creation to managing media purchases for broadcast or publication.
Content of this Article:
1. Background: Role of Indian Advertising Agencies
2. SAC Code and GST Rate on Advertising Services
3. Concerns Faced by Indian Advertising Agencies
4. Issues Raised and Government Clarification
5. Conclusion
Selling of space for advertisement in print media is
leviable to GST @ 5%.If the advertisement agency works on principal to
principal basis, that is, buys space from the newspaper and sells such space
for advertisement to clients on its own account, that is, as a principal, it
would be liable to pay GST @5% on the full amount charged by advertisement
agency from the client.
SAC Code and GST Rate on Advertising Services
|
S.No.
|
Chapter, Section or Heading
|
Description of Service
|
GST Rate
|
|
(1)
|
(2)
|
(3)
|
(4)
|
|
21
|
Heading 9983 (Other professional, technical and business
services)
|
Selling of space for Advertisement in Print Media
|
5% (CGST 2.5% + SGST 2.5%)
|
On the other hand, if the advertisement agency sells space
for advertisement as an agent of the newspaper on commission basis, it would be
liable to pay GST@ 18% on the sale commission it receives from the Newspaper.
ITC of GST paid on such sale commission would be available to Newspaper.
However, if the advertisement agency supplies any service
other than selling of space for advertisement, such as designing or drafting
the advertisement, and such supply is not a part of any composite supply, the
same would be liable to tax @18%. If such supplies are part of any composite
supply, the rate applicable for the principal supply shall apply.
Concerns Faced by Indian Advertising Agencies
Indian advertising agencies are increasingly serving foreign
clients, particularly those looking to target the Indian market or a global
audience. In doing so, these agencies provide a "one-stop solution"
by handling all advertising tasks, including dealing with media owners who
actually display the ads. Payment for these services is typically made in
foreign currency by the foreign client. Despite the straightforward nature of
these transactions, several issues regarding tax treatment under GST have
emerged, leading to confusion within the industry.
Indian advertising companies faced difficulties because some
GST officials treated their services as taxable within India. The main issue
was whether the place of supply of advertising services should be considered
within India or outside India when services are provided to foreign clients. As
a result, some agencies were being denied export benefits. This led to
confusion, particularly about whether advertising agencies acted as
"intermediaries" and whether the services provided to foreign clients
could be classified as "export of services."
The main concerns raised by the advertising industry were:
1. Place of Supply: Some
field formations viewed the services as being supplied in India, thus denying
the agencies export benefits.
2. Intermediary Definition: There was confusion over whether Indian advertising
companies acted as intermediaries between foreign clients and media owners,
which would affect the determination of the place of supply.
3. Recipient of Service:
Clarification was needed on whether the foreign client or their representative
in India should be considered the recipient of the services.
4. Performance-Based Services: Some officials treated advertising services as
performance-based, which would change the rules for determining the place of
supply.
To address these concerns and provide clarity on GST laws,
the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No.
230/24/2024-GST on September 10, 2024.
Issues Raised and Government Clarification
1. Are Indian advertising agencies intermediaries?
Under Section 2(13) of the IGST Act, an
"intermediary" is defined as a person who arranges or facilitates the
supply of goods or services but does not provide these services on their own
account. If Indian advertising agencies were considered intermediaries, the
place of supply for their services would be India, making the service taxable
domestically under GST.
Clarification by the Government: The CBIC clarified that in
most cases, Indian advertising agencies are not intermediaries. These agencies
typically enter into two separate agreements:
One with the foreign client to provide advertising services
(media planning, ad creation, etc.).
Another with Indian media owners to purchase ad space for
displaying the advertisements.
Since the advertising agency is providing its services
directly to the foreign client on its own account, and not merely facilitating
a transaction between the media owner and the foreign client, it is not an
intermediary. Therefore, the place of supply for these services is outside
India (i.e., the location of the foreign client), which qualifies as an export
of services. This allows Indian advertising agencies to claim export benefits
under GST.
2. Who is the recipient of the advertising service?
Under GST law, the recipient of the service is the person
liable to pay for it. The question arose whether the target audience of the
advertisement in India or the representative of the foreign client in India
could be considered the recipient of the services, which would affect the
taxability of the transaction.
Clarification by the Government: The CBIC clarified that the
foreign client is the recipient of the service, not the target audience or any
representative in India. The foreign client is the one who contracts for and
pays for the services provided by the Indian advertising agency. Therefore, the
place of supply is determined by the location of the foreign client, which is
outside India. This means that the advertising services can be treated as export
of services, and no GST is applicable within India.
3. Are advertising services performance-based under Section
13(3) of the IGST Act?
Some GST officers argued that advertising services are
performance-based services under Section 13(3) of the IGST Act. If this were
true, the place of supply would be where the service is performed (i.e.,
India), making it taxable under Indian GST law.
Clarification by the Government: The CBIC rejected this
view. They clarified that advertising services do not require the physical
presence of the foreign client or the use of goods that need to be physically
present in India. As a result, these services cannot be classified as
performance-based under Section 13(3). The place of supply for advertising
services provided to foreign clients is therefore not determined by where the
advertisement is physically displayed (India), but by the default rule under
Section 13(2), which looks at the location of the recipient (foreign client).
Since the foreign client is located outside India, the place of supply is
considered outside India.
Exceptions: When Indian Advertising Agencies Can Be
Considered Intermediaries
The CBIC clarified that there may be certain cases where
Indian advertising agencies act as intermediaries. This happens when the agency
is not directly providing the advertising service but is merely facilitating
the purchase of media space for a foreign client. In such cases, the media
owner invoices the foreign client directly, and the advertising agency invoices
the client only for its facilitation services. In this scenario, the
advertising agency acts as an intermediary, and the place of supply is the
location of the advertising agency (India), making the service taxable within
India.
Conclusion
The government’s clarification through Circular No.
230/24/2024-GST has resolved significant concerns faced by Indian advertising
agencies. In most cases, Indian advertising companies are not intermediaries,
and the place of supply for their services is the location of the foreign
client. This ensures that the services can be treated as exports and are
eligible for export benefits under GST. However, in cases where the agency
merely facilitates the purchase of media space, the place of supply will be
within India, and GST will apply.
By addressing these concerns, the government has provided
clarity on GST law, ensuring that Indian advertising agencies can continue to
serve foreign clients without unnecessary tax burdens, thereby boosting their
competitiveness in the global market.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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