Know all about Sponsorship Services under GST Law
What do you mean by Sponsorship?
Sponsoring something or someone basically means endorsing any person, event, activity or organization financially or through the provision of products or services. The individual or group that provides such support is known as a sponsor.
Who are the parties to a sponsorship agreement?
For instance, an event is being organized by Mr A. Mr B has sponsored a part of this event i.e provided funds for the completion of the event. Mr B will provide some financial consideration for sponsorship purposes. Mr A in turn will provide sponsorship services to Mr B for the consideration received.
The person who receives the consideration is the supplier of the sponsorship service (in this case Mr A) while, the person who provides with the consideration is the recipient of the sponsorship service (in this case Mr B).
How are sponsorship services treated under GST?
- Generally, the supplier of goods or services is liable to pay GST. However, in specified cases, the liability may be cast on the recipient. This is called as reverse charge mechanism (RCM).
- Services provided by way of sponsorship to any corporate body or partnership firm in taxable territory is covered under RCM in GST.
- Services provided by way of sponsorship to any other person (other than corporate body or partnership firm) will be taxable by the standard forward charge mechanism (liability to pay tax rests on the supplier)
What considerations are to be kept in mind while determining whether RCM is applicable or not?
- What is the nature of service provided? (sponsorship service, in this case)
- Who is the supplier? (any person, in this case)
- Who is the recipient? (body corporate or partnership firm, in this case)
Important points to be kept in mind:-
- As per Companies Act 2013, body corporate includes a company incorporated outside India.
- Partnership firm also includes a LLP.
Can the recipient of service be unregistered?
- Generally, every supplier needs to get registered. However, small businesses having all India aggregate turnover below Rupees 20 lakh (10 lakh if business is in notified states) need not register.
- A person who is required to pay tax under RCM has to take compulsory registration as registration is required to submit tax under RCM.
- Hence, the recipient (if unregistered), after receiving sponsorship services has to get himself registered compulsorily within 30 days.
What guidelines can a supplier keep in mind while entering into a sponsorship transaction?
- Supplier to mention RCM on tax invoice when the same is issued
- Services supplied will be considered as exempt as per provisions of Section 17(3) of CGST Act, 2017, which pertains to apportionment of credit and blocked credit
- Proportionate ITC is to be reversed as per Rule 42
- Basically, supplier cannot avail the ITC on inputs and input services of the sponsorship service
What guidelines can a recipient keep in mind while entering into a sponsorship transaction?
- Recipient to remit GST to the government through the Cash Ledger
- Recipient cannot use ITC balance for payment of GST under RCM
- He can claim the tax paid to the government as ITC
- If supplier is registered, his tax invoice will state that it was a RCM transaction
- If supplier is unregistered, he will receive a Bill of Supply. In these cases he will have to generate a Self Invoice.
- Recipient will also have to provide a payment voucher while making payment to the supplier.
What is the GST Rate for Sponsorship Services?
Sponsorship Services & Brand Promotion Services falls under Group 998397 which is taxable at 18%
What returns are required to be filed for Sponsorship Services?
- GST registration holder to file GSTR 1 (for outward supplies) – based on turnover, it would be monthly or quarterly
- GSTR 3B to be filed by 20th of next month (to be filed each month)
- Annual Return to be filed on/before 31st December
When is GST payable for Sponsorship Services?
GST is payable earlier of:-
- Invoice Date
2. 30 days from date of supply of service (if invoice is not issued)
3. Date of receipt of services in books of the recipient
Is any exemption available?
Sponsorship services pertaining to a sporting event organised by:-
- by a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, State, zone or Country
- by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat
- by the Central Civil Services Cultural and Sports Board
- as part of national games, by the Indian Olympic Association
- under the Panchayat Yuva Kreeda Aur Khel Abhiyaan Scheme
The above services are all exempt and will not be liable to GST.