How is GST Calculated for the Advertising Sector in India?
In this article, we explain how GST is charged on the advertising sector in India. In a recent ruling, the Authority for Advance Ruling (AAR) clarified that in India, advertisement through digital media like website, mobile apps, etc. will attract a GST of 18 percent. The GST rate applicable for print media advertisement is five percent.
Recently in a ruling involving e-commerce portal Myntra Designs Pvt Ltd, the Karnataka bench of Authority for Advance Ruling (AAR) clarified that sale of advertisement space on the internet would be liable to 18 percent goods and services tax (GST).
Myntra Designs Pvt Ltd had approached the AAR seeking a verdict on whether providing advertisement space on its portal to foreign entity Lenzing Singapore was liable to GST. The AAR ruled that since the service provided by Myntra to Lenzing entails ‘sale of internet advertising space (except on commission)’ and is being charged at a fixed rate and not on a commission basis, it will be classified under ‘other professional, technical and business services’ under the CGST Act, 2017.
How are different advertising platforms charged under GST in India?
In case of advertisement, there are two parties involved – the advertiser and the publisher. While the advertiser is the party who wishes to advertise a product or idea, a publisher publishes these advertisements.
1. GST on advertising through digital media: In this case, the advertiser wishes to advertise a product or idea on a website, mobile application etc., and the publisher distributes these advertisements on their respective digital media like websites, e-mails, or SMS. Advertisement on digital media is liable to GST at the rate of 18 percent.
2. GST on advertisement in print media: In this case, the advertisement is published in print media like newspapers, magazines, etc. Such advertising in print media attracts a GST of five percent.
3. GST on advertisement through advertising agencies: In this case, an advertiser can approach an agency rather than directly approaching the publisher. There are two possibilities under this arrangement:
- Advertisement in principal’s capacity: In this case, the party who wishes to advertise, approaches an advertising agency to advertise their business. The agency acts as a mediator and buys the advertisement from the advertising company in its name. Then the advertising agency resells the same to the publisher. In this case, GST is liable at five percent and 18 percent, respectively, in case of print and digital media.
- Advertisement in agent’s capacity: In this case, the business entity approaches the agent for advertising their business instead of the advertiser. The agent buys the space on behalf of the advertiser and charges a commission for that. GST levied would be at the rate of five percent and 18 percent for advertisement in print media and digital media, respectively. The agent would levy 18 percent GST on the commission charges.
4. Advertisement through registered person outside India: GST on the advertising sector is applicable to any supply of service by someone residing in a non-taxable territory to anyone located in a taxable territory. The buyer will be liable to pay GST as a recipient of service.
Can advertising companies claim input tax credit (ITC)?
Under GST, advertising companies can claim the credit of taxes paid on the purchase of equipment and high-end electronic goods that are used for their business. However, these companies cannot charge GST on services offered, including the advertisement shoots carried out at remote locations where they don’t have a physical office.
For example, an advertising agency registered in Rajasthan shoots an advertisement in Himachal Pradesh. The hotel would charge CGST + Himachal Pradesh GST for the accommodation of the whole crew. However, the advertising agency cannot avail ITC on the hotel accommodation since it is registered in Rajasthan. The ITC can only be claimed for expenses that are taxable under integrated GST (IGST) and CGST + Home State GST (state in which the entity is registered).
To prevent confusion regarding key tax compliances and reporting requirements, businesses are welcome to reach out to our tax advisors at firstname.lastname@example.org.
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