CA Himanshu Dhakad
Prior to 2014, Digital Ads were specifically exempted from the levy of service tax in India and were specifically mentioned in the Negative List of Services. However, this exemption has now been withdrawn and Digital Ads are no longer part of the Negative List of Services. As this exemption has now been withdrawn, Service Tax on digital ads in India on Website and Mobiles would be liable to service tax @ 14.50%.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 digital ads 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 publishers and the publisher will then deposit this Service Tax with the Service Tax Department.
The Service Tax component would be specifically required to be disclosed in the Invoice. This amount of Service Tax collected by the publisher of the advertisement would then be required to be deposited with the Service Tax Department.
a. 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.
b. However the person bearing the service tax i.e the publisher can take input credit of the service tax paid.
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 customer. 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. 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 such income needs to pay service tax or not?
To answer this query we need to understand the parties involved. There are clearly three parties involved:
Here Customers pays to Google for digital advertisement Services and in turn Google pays to the Publisher. Google collects service tax from Customers and paying to the Government but merely because Google is Paying service Tax It cannot be argued that website Owner need not pay service tax since Google has already paid the service tax on received income. It is not valid argument in Law.
Since the website owner is selling space to the Google for advertisement it becomes mandatory for the Website owner to pay service tax on this Income Earned if such Income comes under the purview of service Tax Law.
Can such income be claimed as Export under Section 66B of Finance Act:
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 (excluding Google advertisement sales or Sales to other agencies outside India). So, the important thing to remember here is that Service Tax is liable to be paid only when the revenue (excl ad sales which can be treated as export) 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 20th 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.
However place of provisions for selling of space is not possible 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.
However Department may ask “Why you are not paying service tax on your Google/ad sense income?” There are chances of scrutiny if being shown as export Income. Therefore we request you to keep all documents handy and should be ready for litigation of same.