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Overview of GST on Advertisement Services and its Taxability

Ruchi Gandhi

| Updated: Jan 13, 2020 | Category: GST, GST Advisory

Overview of GST on Advertisement

Advertisement is an indelible part of business growth and acts as a medium for communicating the products and services offered by the seller to its prospective buyers. Owing to the aid of rapidly growing technology, there have been diverse modes of advertisement ranging from radio, newspapers, posters and hoardings, mails, and digital social media like Twitter, Facebook and more. Advertisement services may be undertaken by the seller itself or through the means of an advertising agency or under an ancillary marketing model. Since there are diverse ways in which advertisement services are rendered, it becomes imperative to understand their taxability provisions from the GST perspective.

Many queries are often encountered by the Department of Revenue, Ministry of Finance regarding the applicability of GST on the selling of space for advertisement in digital or print media. The mechanism of GST works on such grounds that the receiver of advertisement services (or the person giving the advertisement) makes payment including GST to the supplier/service provider (or publisher of the advertisement). The service provider, in turn, is entrusted with the responsibility of depositing such GST on advertisement hoardings, etc. to the government.

The rate charged with reference to GST on advertisement services is largely influenced by the terms and conditions envisaged in the contract between the advertising agency, newspaper and the client.

GST Rate on Advertisement Services

Advertisement services are being classified under Heading 9983 (Other professionals, technical and business services). The rates of GST on newspaper advertisement and other advertising services as laid down under the GST Act are as follows:

Rates of GST on Advertisement Services:

Heading

Description of service

GST rate

Heading 9983

(Other professional, technical and business services)

(i) Selling of space for advertisement in print media

5%

Other

Other professional, technical and business services other than (i) above [comprising the advertising services and provision of advertising space or time]

18%

As per the Explanatory Notes to the Scheme of Classification of Services, the classification of advertisement services under the GST Act is provided as follows:

Classification of Advertisement 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/radio advertising time (except on commission)

998365

Sale of Internet advertising space (except on commission)

998366

Sale of other advertising space or time (except on commission)

GST for sale of advertisement space in digital media

Indeed, while the rate of GST imposition for digital media comprising the mobile, website, and other application-oriented platforms is levied at 18%, the rate of GST levied for print media is 5%. For example, a website owner sells a certain space on his/her website to a business concern. If the service provider/publisher charges Rs. 50,000 for selling such space, then GST on the advertisement to be payable by him/her on the same shall be equivalent to Rs. 9,000, i.e., levied at 18%.

GST for sale of advertisement space in print media

In respect of a sale of advertisement space in the form of print media consisting of newspapers, magazines and journals, GST on advertisement is chargeable at 5%. For example, a renowned newspaper publishing company sells page space of its newspaper to a business enterprise seeking promotional avenues for its business growth. If the publishing company charges Rs. 50,000 for the sale of such newspaper space to the enterprise, then GST on the advertisement to be payable by the publishing company shall be Rs. 2,500, i.e., levied at 5%.

GST on advertisement through advertising agencies

The below-mentioned points must be perused with regard to advertising services in print media as well as digital media, which are undertaken by businesses through the support of advertisement agencies:

  • An advertiser can opt to advertise a business by infusing the facilities of an advertising agency. An advertising agency comes into picture wherein the business concerns approach an agency rather than directly approaching the advertisers or publishers for fulfilling their advertisement requirements. More precisely, where an advertisement agency operates on a principal to principal basis, acquires space from the newspaper and sells the same for advertisement purposes to its clients on its own account; it shall be liable to charge GST at 5%* on the complete value charged by such advertisement agency from its clients. (Note*: This rate is 18% in case of digital media.)

To illustrate with an example, suppose the newspaper offers an advertisement space at Rs. 170 per unit to an agency, and the advertising agency sells the same to its client at Rs. 200 per unit. In this case, the newspaper shall be liable to charge GST at 5% on Rs. 170 (Rs. 8.50); and the advertising agency shall be liable to charge GST at 5% on Rs. 200 (Rs. 10) and can avail of an input tax credit of Rs. 8.50 for the payment. Thus, the buyer of the advertisement is allowed to claim the input tax credit for the GST earlier paid.

  • Conversely, where an advertisement agency (acting as an agent of the newspaper) operates on a commission basis, acquires space from the newspaper and sells the same for advertisement purposes to clients on behalf of the newspaper; it shall be liable to pay GST at 18% on the sales commission received from the newspaper. The input tax credit of GST paid on the sales commission shall be allowable to the newspaper. 

To illustrate with an example, suppose an advertising agency sells space to the client on behalf of the newspaper (i.e., not on his own account) for Rs. 200 and receives a commission of Rs. 30 from the newspaper. In this case, the advertising agency shall be liable to pay GST at 18% on the sales commission of Rs. 30 (Rs. 5.40). The input tax credit of GST paid on the sales commission shall be availed by the newspaper while charging GST at 5%* on Rs. 200 (being the value of advertisement space sold by the newspaper to the client). (Note*: This rate is 18% in case of digital media.)

  • Where the advertisement agency provides services other than selling of advertisement space such as designing and drafting the advertisement pattern, and such supply is not a part of composite supply; GST at 18% shall be levied on the same. However, if the supplies form part of the composite supply, the rate levied for the principal supply shall be applicable.

Definitions with respect to GST on an advertisement

The terms “advertisement” and “advertising agency” have not been explicitly defined under the GST Act and their meaning can be construed from Section 65(2) of Finance Act, 1994 which provides that “advertisement includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas.”  Moreover, Section 65(3) of the Finance Act, 1994 states that “advertising agency means any person engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant.”

Applicability of Forward charge mechanism with regard to GST on an advertisement

The government has not notified advertisement services in print media as well as digital media for payment under the reverse charge mechanism. In other words, the obligation of GST on advertisement services has to be executed by the suppliers of these services under the forward charge mechanism. However, the reverse charge mechanism is applicable where the seller of advertisement services is a registered person outside India. In such cases, the advertiser is not required to deposit GST with the publisher; rather he/she is required to directly deposit the GST with the government.

Takeaway

Under the present GST regimen, the taxability of GST on advertisement varies with the medium offered. For advertising services rendered through digital means, the applicable GST rate on advertisement is 18%; and for advertising services rendered through print media, the applicable GST rate on advertisement is 5%.

Also Read: Government to Announce Relaxation from GST for Companies under IBC Process

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Ruchi Gandhi

A CA together with MBA (Fin) and M Com, she relishes taking interest in insightful writing in the domain of taxation and finance. She has gained experience as a full-time author and has also served an accounting role in industry.

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