Is GST applicable on sale of space for advertisements in foreign magazines?

Advertisement is considered significant for the growth of any business, brand, product or service. With the ever increasing modes of advertisement, taxability of the same also becomes complex. It gets more complicated when advertisements are in foreign magazines, as the scope of the advertisement will be outside India (sometimes). What will the GST liability in such cases? Let us learn the same in detail in this article.

Is sale of space for advertisements a supply under GST?

The taxable event in GST is supply of goods or services or both. The term, “supply” has been inclusively defined in the Act. The term Supply has been defined under section 7(1) of the CGST Act by way of Scope of Supply which includes:

All forms of Supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
import of services for a consideration whether or not in the course or furtherance of business &
the activities specified in Schedule I, made or agreed to be made without a consideration.

If an assessee approaches a publisher for sale of space of advertisement, then the assessee here is not paying for the magazine, newspaper (a movable property). Rather, it is paying for the advertisement. The publisher is not supplying goods to the assessee. Therefore, the transaction of selling space for advertisement falls under “supply of services”.

How are advertisement services categorized under GST?

GST is applicable to all modes of advertising (sale of space in digital media as well as print media). For taxability purposes advertising services are divided into 2 categories under GST:-

advertising through digital media
advertisement in print media

What do you mean by advertisement in print media?

Print advertising is a widely used form of advertising. These advertisements appear in newspapers or magazines and are sometimes included as brochures or fliers. GST is leviable on advertisements in print media @ 5%.

For instance, ABC Private Limited is a leading newspaper publishing company. It sells space on its newspaper to a business entity. If the publishing company charges Rs 500,000 for sale of such space then GST payable on the same will be Rs 25,000 (500,000 x 5%).

What do you mean by advertisement in digital media?

Digital advertising is basically delivering promotional content to users through various online and digital channels. The advertisement can be published in various digital mediums like Websites, E-mails or SMS. Advertisement on digital media is liable to GST at the rate of 18%. In these transactions, there are two parties involved:-

Advertiser – Who wants to advertise a product, idea, service etc
Publisher – Who publishes these advertisements

For instance, Mr X is a website owner who sells space on his website to a business entity. Mr X charges Rs 200,000 for sale of such space. GST payable on the same will be Rs 36,000 (200,000 x 18%).

What is the tax liability when advertisements are provided through advertisement agencies?

An advertisement agency is basically is a business committed to planning, creating and handling advertisements for its clients.

An advertising agency can work on two bases:

When an advertisement agency operates on a principal to principal basis

When an advertisement agency acquires space from the newspapers/websites and sells the same for advertisement purposes to its clients on its own account), it shall be liable to charge GST.

For instance, suppose the newspaper offers an advertisement space at Rs. 5000 per unit to an agency, and the advertising agency sells the same to its client at Rs. 6000 per unit. In this case, the newspaper shall be liable to charge GST at 5% on Rs. 5000 (Rs. 250); and the advertising agency shall be liable to charge GST at 5% on Rs. 6000 (Rs. 300).

2. When an advertisement agency (acting as an agent) operates on a commission basis

When an advertisement agency 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.

For instance suppose an advertising agency sells space to the client on behalf of a website (not on his own account) for Rs. 2000 and receives a commission of Rs. 300 from the website. In this case, the advertising agency shall be liable to pay GST at 18% on the sales commission of Rs. 300 (Rs. 54).

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Who is liable to pay GST if advertisement service is through a registered person outside India?

Under general tax provisions (forward charge mechanism) the liability to pay tax to the government rests with the supplier. However under certain provisions, the liability to pay tax to the government falls on the recipient.

In terms of Notification No. 10/2017- Integrated Tax (Rate), any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient, is taxable under RCM.

Therefore, if a person in India procures advertisement services from a person outside India, the recipient of such service will have to discharge the GST liability to the Government.

For instance, if Mr A approaches a publisher of international magazine M/s. XYZ in USA, to publish advertisement of his product in the magazine for which he will pay in foreign currency. As the firm is located in non-taxable territory, then Mr A would be required to discharge the GST liability to the Government as a recipient of service. Now let us find whether GST is applicable on sale of space for advertisements in foreign magazines.

To find out whether GST is chargeable, it is important to determine whether it is an import of service or not?

Section 2(11) of IGST Act 2017 defines Import of Services. According to Section 2(11), Import of services means the supply of any service where:

The supplier of service is located outside
The recipient of service is located in India; and
The place of supply of service is in India

As the publisher is located outside India and the Indian advertiser is located in India. Therefore, in present case, first two conditions of the definition are satisfied. Now, it is important to determine whether place of supply of service is in India or not.

What is the Place of supply on sale of space for advertisements in foreign magazines?

Section 13 of the IGST Act deals with the provisions that determine the place of supply of services where the location of the supplier or that of the recipient is outside India. Section 13(2) lays down the general principles concerning the place of supply of services except the services specified in sub-sections (3) to (13). In this case, the place of supply of services shall be the location of the recipient of services. Where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.

By referring to Section 13(2) it is clear that Place of supply on sale of space for advertisements in foreign magazines shall be location of recipient of services which is in India. As it satisfies all requirements of being “import of service” and thereby covered under notification number 10/2017-IGST (Rate) dated 28-6-2017 where the GST liability has to be discharged by the recipient.

Can a person avail the benefit of Input Tax credit on Advertising services?

Under GST the greatest advantage today for all manufacturers, traders and services providers is the utilization of Input Tax Credit (ITC). ITC is the tax that a business pays on a purchase, which can be used to reduce its tax liability when it makes a sale. Advertising Companies invest a huge sum on the purchase of equipment, cameras and high-end electronic goods. They are entitled to claim the credit of taxes paid on such inputs, provided they are registered under GST.

SAC codes of Advertising 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 and radio advertising time
998365	Sale of Internet advertising space
998366	Sale of other advertising space or time (except on commission)