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Advertisements play a very important role in the success of every business. It is estimated that Advertising expenditure for the Calendar Year 2018 would be approximately 0.45% of the Indian GDP.  

This article focuses on the following aspects:

  1. Taxability of Advertising Sector pre GST
  2. Advertising Sector under GST and rate of taxes
  3. Advertisement through advertisement agencies
  4. Advertisement through registered person outside India
  5. Input Tax GST credit on Advertising services
  6. SAC codes of Advertising services

1. Taxability of Advertising Sector pre GST

With the introduction of Service Tax on all services (other than those covered under negative list) w.e.f July 1, 2012, service tax was applicable on all the aspects of advertising services except the sale of space or time for advertisement in some instances.  Accordingly, the sale of time slots in between programs which are being telecasted on television, the sale of space on hoardings, and such were not liable to tax. However w.e.f October 1, 2014, the negative list was amended to restrict the non-taxability to the sale of space in print media and all the other sale of space/time arrangements were brought under the net of service tax.

2. Advertising Sector under GST and rate of taxes

GST is applicable to all modes of advertising including the sale of space in print media  

While this leads to an increase in cash outflow, the free flow of credits on the procurement side leads to an overall reduction in the value of advertising.

a. GST on advertising through digital media

In these transactions, there are two parties involved – the advertiser and the publisher.  

Advertiser – Who wants to advertise a product, idea, website, mobile application etc;

Publisher – Who publishes these advertisements.  The advertisement can be published in various digital mediums like Websites, E-mails or SMS.

Advertisement on digital media is liable to GST at the rate of 18%.

Illustration

A Website Owner sells space on his website to a business entity.  If the website owner charges Rs 100,000 for sale of such space (also referred to as banner) then GST payable on the same will be Rs 18,000 (100,000 x 18%)

b. GST on advertisement in print media

The advertisement, in this case, is published in print media like Newspapers.

Illustration

A leading newspaper publishing company sells space on page 1 of its newspaper to a business entity.  If the publishing company charges Rs 100,000 for sale of such space then GST payable on the same will be Rs 5,000 (100,000 x 5%)

3. Advertisement through advertisement agencies

There are various options which an advertiser can opt to advertise a business. An advertising agency is one such option wherein the businesses approach an agency rather than directly approaching the advertisers for advertising.  There are two possibilities which can occur in this kind of an arrangement:

Advertisement in Principal’s Capacity:

The advertiser approaches the advertising agency for advertising its business.  The advertising agency buys the advertisement from the advertising company in its name and then resells the same to the advertiser.

Illustration

A Company which publishes Newspapers, sells space on page 1 of its newspaper to an Advertising Agency.  If the company charges Rs 100,000 for sale of such space then GST payable on the same will be Rs 5,000 (100,000 x 5%)

When the advertising agency sells the same space to a business entity at say Rs 150,000, the GST payable on the same will be Rs 7,500 (1,50,000 x 5%)

Advertisement in Agent’s Capacity:

A business, instead of approaching the advertiser, can contact the agent for advertising its business.  The advertising agency buys the space on behalf of the advertiser but charges commission for the same. In such a case, GST would be levied at 5% for advertisement in print media or 18% for advertisement in digital media. The advertising agency would levy GST at the rate of 18% on the commission charges.

4. Advertisement through registered person outside India

As per Section 5(3) of the IGST Act, 2017 reverse charge mechanism is applicable on notified goods and services. This also applies to any supply of service by any person who is located in a non-taxable territory to any person located in a taxable territory, other than the non-taxable online recipient.

If Mr A procures advertisement service from M/s. HIJ, a  person located in non-taxable territory, then Mr A would be required to discharge the GST liability to the Government as a recipient of service.

5. Input Tax GST credit on Advertising services

Advertising Companies invested a lot of money on the purchase of equipment and high-end electronic goods which were required for their businesses, but they were not entitled to claim the credit of the same.  Under GST, they would be entitled to claim the credit of taxes paid on such equipment.

Advertising Companies are required to carry out the advertisement shoots at remote locations where they do not have a place of business.  Eg. An Advertisement Agency registered in Maharashtra decides to shoot a commercial in the State of Jammu and Kashmir. They would incur substantial cost towards accommodation of the entire crew for which the hotel would charge CGST + Jammu GST and the advertising agency will not be able to avail credit of the same since they are registered in Maharashtra (credit available only of IGST and CGST + Home State GST).

6. SAC codes of Advertising services

 

Group 99836 Advertising services and provision of advertising space or time
998361 Advertising Services
998362 Purchase or sale of advertising space or time, on commission
998363 Sale of advertising space in print media (except on commission)
998364 Sale of TV and radio advertising time
998365 Sale of Internet advertising space
998366 Sale of other advertising space or time (except on commission)

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