TAX IMPLICATIONS OF DIGITAL ADVERTISEMENT SERVICES
In today's business environment, Marketing is the key to boom your business, using digital mode to advertise your products/services are new tools available for marketing. We will discuss the business model how advertisements in digital platforms like YouTube works and how Taxation at various point of business occurs in this article.
This model consists of three persons
(a) Persons who wants to market their product via using Google services
(b) Google/YouTube etc Acting as a medium to show advertisements
(c) Youtubers having channels in YouTube showing advertisements.
TRANSACTION 1- Between A & B (where Google is service provider and other person is recipient of services)
Tax implications under
A. Goods and services tax (GST)
There are two situation which arises under GST law for taxation: -
Case 1: When person is using services of Google which is registered in India under GST law-
Here, tax is payable by person(recipient) under forward charge which means supplier(Google) will deposit tax to government of India thus Google will deposit GST collected by them @18% to government.
Case 2: When person is using services of Google not registered in India (Google has also subsidiaries/Associates in Singapore, London)
If person gets Bill from this entity in such case due to Section 13(2) of IGST ACT 2017 which fixes place of supply it will be treated as import of services by person as place of supply will be India. However, online advertisement services are duly covered in definition of OIDAR services as per Section 2(17) of IGST ACT 2017 for which we have to refer Section 14 of IGST ACT 2017 for tax implication.
Bare text of Section 14 of IGST ACT 2017
On supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by a non-taxable online recipient, the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services: Provided that in the case of supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by a non-taxable online recipient, an intermediary located in the non-taxable territory, who arranges or facilitates the supply of such services, shall be deemed to be the recipient of such services from the supplier of services in non-taxable territory and supplying such services to the non-taxable online recipient except when such intermediary satisfies the following conditions, namely:- - (a) the invoice or customer' s bill or receipt issued or made available by such intermediary taking part in the supply clearly identifies the service in question and its supplier in non-taxable territory; (b) the intermediary involved in the supply does not authorise the charge to the customer or take part in its charge which is that the intermediary neither collects or processes payment in any manner nor is responsible for the payment between the non-taxable online recipient and the supplier of such services; (c) the intermediary involved in the supply does not authorise delivery; and (d) the general terms and conditions of the supply are not set by the intermediary involved in the supply but by the supplier of services. (2) The supplier of online information and database access or retrieval services referred to in sub-Section (1) shall, for payment of integrated tax, take a single registration under the Simplified Registration Scheme to be notified by the Government: Provided that any person located in the taxable territory representing such supplier for any purpose in the taxable territory shall get registered and pay integrated tax on behalf of the supplier: Provided further that If such supplier does not have a physical presence or does not have a representative for any purpose in the taxable territory, he may appoint a person in the taxable territory for the purpose of paying integrated tax and such person shall be liable for payment of such tax.
SUMMARISED ANALYSIS OF SECTION 14 OF IGST ACT 2017
IF SUPPLIER IS LOCATED IN NON-TAXABLE TERRITORY PROVIDING OIDAR SERVICES TO
1. NTOR (DEFINITION COVERED BELOW) -THEN SUCH SUPPLIER HAS TO PAY TAX IN FORWARD CHARGE IN INDIA.
2. OTHER THAN NTOR - THEN SUCH RECIPIENT IS LIABLE FOR PAYMENT OF TAX REVERSE CHARGE MECHANISM.
NTOR DEFINITION- AS PER 2(16) OF IGST ACT 2017- means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.
Explanation. For the purposes of this clause, the expression "governmental authority" means an authority or a board or any other body, - (i) set up by an ACT of Parliament or a State Legislature; or (ii) established by any Government, with ninety per cent. or more participation by way of equity or control, to carry out any function entrusted [to a Panchayat under article 243G or]3 to a municipality under article 243W of the Constitution;
OIDAR SERVICES DEFINITION - AS PER SECTION 2(17) OF IGST ACT 2017
Means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as, - -
Advertising on the internet; (ii) providing cloud services; (iii) provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet; (iv) providing data or information, retrievable or otherwise, to any person in electronic form through a computer network; (v) online supplies of digital content (movies, television shows, music and the like); (vi) digital data storage; and (vii) online gaming.
Thus, in short, we can say If a person is covered under definition of NTOR then Google has to take registration in India and pay tax in forward charge mechanism otherwise recipient of service is liable for deposition of tax by reverse charge mechanism.
B. INCOME TAX LAWS
Case 1: when Google or any other provider is registered in India having PAN under Income tax ACT 1961 then person paying for services of digital space, he has to deduct TDS under Section 194C If bill exceeds Rs 30,000/-or aggregate of all bills in any previous year exceeds Rs 1,00,000/-
Case 2: when Google or any other provider is not having registration in India and further no Permanent establishment as defined under income tax ACT it means billing is made from subsidiaries outside India then as per Finance ACT,Section 165 of the same levies a new tax on such Transactions via an equalisation levy of 6% for digital advertisements If person is not having permanent establishment in India giving relaxations up to Rs. 1,00,000 for the previous year thus Google has to pay this levy to government of India further this Section is so harsh that If non-resident having no permanent establishment is not paying levy person taking services will have to pay this to government thus person taking services from them has to bear equalisation levy of 6% which is non recoverable from Google ads. further Google ads in it terms and conditions says levy should be borne by recipient thus it creates this service costly in hands of recipients. Recipients has to pay equalisation levy via challan number ITNS 285 in Tax information network site and has to file returns for the same in E filling website in form 1.
TRANSACTION 2- BETWEEN B AND C (Where Google is service recipient and youtubers providing their channels for advertisement purposes are supplier of services)
TAX IMPLICATIONS ARE AS UNDER
A. GOODS AND SERVICES TAX LAWS
Here again two cases will arise which are dealt in below sub pointers: -
Case 1: If Google or service recipient is registered in India and location of supplier is in India
GST will be charged by supplier of service (youtubers) @18% from service recipients (Google) and deposit to government, however, if supplier is not liable to register under GST then no tax is levied and collected by Google as no tax invoice as per Section 31 will be made. However, bill of supply can be given to recipient.
Case 2: If Google or service recipient is not registered in India but location of supplier is in India
Here, we have to first check location of supplier, location of recipient and place of supply If one of two persons is outside India then as per Section 13(2)If place of supply is out of India this will be treated as export of services If it qualifies definition of export of services (given below) further it will be treated as zero rated supply as per Section 16 of IGST ACT 2017.
If it becomes zero rated supply then export of services can be made by two methods as prescribed in Section 16 of IGST ACT 2017-
A- By letter of undertaking and without payment of tax
B- With payment of tax and claiming Refund on input services under Section 54 of CGST ACT 2017 with prescribed rules and methods via form GST RFD -01.
'export of services' means the supply of any service when,- (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section
B. INCOME TAX LAWS
Receipts by suppliers (Youtubers) will be taken for computation of income as per income tax laws provisions under heads of income as profits and gains of business or income from other sources and will be ultimately taken to gross total income from which deductions If any available under chapter IV-A will be taken and net income will be calculated which will be taxed as per slab rates of Assessment year defined under finance ACT.*
Note* For calculation of tax as per income tax laws it will vary as per persons nature of Activities and scope of Transaction that will get covered in income tax laws.
LET ME INTRODUCE MYSELF IN BRIEF
I am Akshay Parakh. I have cleared my Chartered Accountancy exams in November 19 and joined ICAI as member from 2020 itself. After clearing the exams as I have a lot of interest in GST laws so to keep myself updated I read all latest notifications and changes made in provisions of the laws along with rulings and court cases. I currently live in Raipur, Chhattisgarh.
I HOPE YOU GOT ALL INFO ON TAX IMPLICATIONS OF DIGITAL ADVERTISEMENTS MODEL.
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