The Budget 2014 introduced a major amendment which would impact the whole Digital Advertising Industry. Prior to 2014, Digital Ads were specifically exempted from the levy of service tax on adsense income in India and were specifically mentioned in the Negative List of Services. However, this exemption has now been withdrawn and Digital Ads no more form a part of the Negative List of Services. As this exemption has now been withdrawn, Service Tax on on adsense income in India or all Digital Ads on Website and Mobiles would be levied @ 14.50%.
On 25th Aug 2014, the Service Tax Dept issued an official notification with respect to the Date of Applicability of Service Tax on adsense income in India which would be applicable on all Digital Ads on Websites and Mobiles from 1st Oct 2014.
Impact of Levy of Service Tax on Online Industry
With Service Tax now applicable on all Digital Ads, the advertiser would be required to pay Service Tax to the publisher and the publisher will then deposit this Service Tax with the Service Tax Department.
The Service Tax component would also be specifically required to be disclosed in the Invoice. An example of the manner of disclosure in the Invoice has been given below:-
|Particulars||Amount in Rs.|
|(Add) Service Tax @ 12.36%||7,25,000|
|Total Amount Payable||57,25,000|
This amount of Service Tax collected by the publisher of the advertisement would then be required to be deposited with the Service Tax Department.
The Publisher would also be required to apply for Service Tax Registration No., file regular Service Tax Returns and other regular statutory compliance which would result in an increased burden on the Publisher.
However the person bearing the service tax i.e the publisher can take input credit of the service tax paid. In the above example he can take credit of Rs. 7,25,000 . This mean that, Rs. 7,25,000 will be reduced from his service tax liability, if any. For this, he should be registered with the service tax department.
Service Tax on Adsense Income in India or Google Income
It is very clear that Google need to pay service tax on adsense income in India on amount collected from publisher. Authority of advance ruling under service tax has specifically provided that the service provided by the Google to its publishers is classified under taxable service. For detailed Order. However the service was exempted from service tax from year 2012 to 1st Oct 2014.
Now the big question is whether the website owner or receiver of adsense income needs to pay service tax or not ?
There are clearly three parties involved
WEBSITE OWNER , GOOGLE AND PUBLISHER
Here publisher pays to Google and in turn google pays to the website owner.
Google is collecting service tax on from publisher and paying to the Government. Google also pays to the website owner. It cannot be argued that website Owner need not to pay service tax since it Google has already paid the service tax on received income. It is not good argument in Law.
Since the website owner is selling space to the Google for advertisement then it becomes mendetory for the Website owner to pay service tax on this Income Earned.
Reasons for not pay.
Service Tax on adsense income in India – Exemptions
Service Tax is not levied in the following cases:-
1. In case the Total Revenue/Turnover of the business is less than Rs. 10 Lakhs. This exemption is known as Small Scale Exemption.
However, you are only required to apply for service tax registration and file service tax return only when the total net revenue during the year exceeds Rs. 9 Lakhs (excl ad sales). So, the important thing to remember here is that Service Tax is liable to be paid only when the revenue (excl ad sales) exceeds Rs. 10 Lakhs p.a. but is required to apply for service tax registration when the revenue exceeds Rs. 9 Lakhs p.a.
2. All Services which are exported out of India are also exempted from the levy of Service Tax. This is due to charging section 66B of service tax, which says that services should be provided or agreed to be proved in taxable territory.
To determine the taxable territory, there are place of provisions rules 2012, notified by Notification No.28/2012 dated 20 th June 2012. The Rule 6A of these rules provides for following condition to make a service export.
a. the provider of service is located in the taxable territory
b. the recipient of service is located outside India
c. the service is not a service specified in the section 66D of the Act
d. the place of provision of the service is outside India
e. the payment for such service has been received by the provider of service in convertible foreign exchange; and
f. the provider of service and recipient of service are not merely establishment of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act.
Earlier, till June 30, 2012 the Govt. has specified Export of Service Rules 2005 and Services (provided from outside India and received in India) Rules 2006 to determination of whether a service is considered as Export or not. These rules given below are irrelevant now.
The Rule 7.2.2 of Import and Export of Service says : ” These two conditions are:
(i) such service is delivered outside India and used outside India, and
(ii) the payment received for providing such service should be in convertible foreign exchange. It is necessary that the common qualifying conditions as well as the group-specific conditions are fulfilled so as to treat the provision of any such service as export of service. ”
As per the new rule 6A we need to full fill all six conditions. Condition (d) is important in our case. We need to find out the place of provision of online advertisement service provided to Google.
Rule 3 of place of provision of service says that, if a service is not covered under any rules i.e Rule 4 to Rule 12 , then the place of provision is LOCATION OF SERVICE RECIPIENT.
I tried to find out and could not fit this service in any other rules i.e rule 4 to rule 12. So rule 3 is relevant. And accordingly it is export service.
The website owner is providing /selling space in website to google from India. But whether the Google is using that service outside India or not? It is irrelevant as per new rules.
A service provided from India to a foreign buyer, a “knowledge” service is most likely “export” – they have provided some clarity in a 2009 circular.
I find a new update regarding service tax. The department (CBEC ) has decided to change the mechanism of service tax return scrutiny from 1st Aug 2015. So it is very possible that department can ask you “Why you are not paying service tax on your google/adsense income?” There are more chances of scrutiny of persons who have shown google income as export income and not paid tax on it. So be ready with your explanations. Read this article for new mechanism of service tax return scrutiny.
The Budget 2016 has introduced a new levy called Equalisation levy. Google & Facebook are going to affected by this Levy.
I will be updating the Article according to the changes in law.
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TAGS: Service tax on google income in India, service tax on online advertisement in India, service tax on google income in India, Service tax on admob Income in India