Understanding Goods and Services Tax on the Indian Advertising Industry

Advertising is crucial for business success. In 2018, advertising spending in India was estimated to be around 0.45% of the nation's GDP. This article clarifies the applicable GST rates for different advertising channels and explains the tax implications for agencies acting as principals or agents. It also details the reverse charge mechanism for overseas advertising services and highlights the benefits of input tax credit for advertising companies under the new tax regime, alongside a list of relevant SAC codes. A challenge arises when advertising companies conduct shoots in remote areas where they lack a registered business presence. For example, if a Maharashtra-registered advertising agency films a commercial in Jammu and Kashmir, the hotel accommodation for the crew would incur CGST plus Jammu GST. The agency would be unable to claim credit for these taxes, as credit is typically available only for IGST or CGST combined with the GST of their home state.

The Services Accounting Codes (SAC) for advertising services and the provision of advertising space or time are categorized under Group 99836. Specific sub-codes include:

Pre-GST Taxation of the Advertising Industry

Prior to the Goods and Services Tax (GST) implementation, service tax became applicable to most advertising services from July 1, 2012. Initially, certain sales of advertising space or time, such as television slots or billboard space, were exempt. However, an amendment on October 1, 2014, revised this, limiting the exemption to only print media advertising space. All other forms of advertising space and time arrangements then became subject to service tax.

Advertising Services Under GST: Applicable Rates

Under the Goods and Services Tax (GST) regime, all advertising methods, including print media space sales, are subject to tax. Although this can initially increase cash outflow, the availability of input tax credits on purchases ultimately helps reduce the overall cost of advertising services.

Digital Media Advertising GST

Digital advertising involves two main parties: the advertiser, who seeks to promote a product, idea, website, or application, and the publisher, who displays these advertisements. Digital advertisements can appear on various platforms such as websites, emails, or SMS. Digital media advertising attracts an 18% GST rate. For example, if a website owner charges a business entity INR 100,000 for banner space, the GST due will be INR 18,000 (18% of INR 100,000).

Print Media Advertising GST

Advertisements featured in print media, like newspapers, are also subject to GST. For instance, if a major newspaper company charges a business entity INR 100,000 for advertising space on its front page, the applicable GST will be INR 5,000 (5% of INR 100,000).

Advertising Through Agencies

Businesses have several ways to advertise, with engaging an advertising agency being a common choice. Agencies act as intermediaries, allowing businesses to avoid direct dealings with advertisers. This arrangement can operate in two primary ways:

Agency Acting as Principal

In this model, an advertiser contracts an agency to promote its business. The agency acquires advertising space from an advertising company in its own name and then resells it to the client. For example, if a newspaper publisher charges an advertising agency INR 100,000 for print space, the GST due is INR 5,000 (5% of INR 100,000). If the agency then sells this space to a business for INR 150,000, the GST applicable on that sale will be INR 7,500 (5% of INR 150,000).

Agency Acting as Agent

Alternatively, a business might approach an agency to act on its behalf. The agency procures advertising space for the client but charges a commission for its services. In this scenario, the advertising service itself attracts GST at 5% for print media or 18% for digital media, while the agency's commission is subject to an 18% GST rate.

Advertising Services from Overseas Registered Entities

According to Section 5(3) of the IGST Act, 2017, the reverse charge mechanism (RCM) applies to specific goods and services. This includes services supplied by a person in a non-taxable territory to a person in a taxable territory, excluding non-taxable online recipients. Consequently, if a taxable entity in India (e.g., Mr. A) obtains advertising services from an overseas entity (e.g., M/s. HIJ) located in a non-taxable territory, Mr. A becomes responsible for paying the GST to the government as the service recipient.

Input Tax Credit for Advertising Services under GST

Prior to GST, advertising firms could not claim input tax credit on significant investments in equipment and high-end electronics essential for their operations. However, under the GST framework, these companies are now eligible to claim credit for taxes paid on such capital goods.

SAC Codes for Advertising Services

The Services Accounting Codes (SAC) for advertising services and the provision of advertising space or time are categorized under Group 99836. Specific sub-codes include: