Editor’s Note: This is a guest post authored by CA Karan Batra form www.charteredclub.com which is a Q&A Forum for all your Tax Queries.
The Budget 2014 announced by the new Narendra Modi government introduced some changes in tax structure. One such change which would impact the income of most of the people who earn through Online Sources is the Levy of Service Tax @ 12.36% on Advertisements served on Websites and Mobiles.
In Budget 2014 it was announced that Service Tax would now be levied on Digital Advertisements served on Websites and Mobiles. However, the date from which these would be applicable was not announced.
On 25th Aug 2014 vide Notification No. 18/2014, the date of applicability of Service Tax on Website and Mobile Ads was also announced and Service Tax on Digital Ads would now be applicable from 1st Oct 2014.
Earlier the ads served on mobiles and websites were specifically exempted from the levy of Service Tax as these were included in the Negative List of Services (i.e. those services on which service tax is exempted). Digital ads no more form a part of the Negative List of Services and therefore Service Tax would now be levied on digital ads.
It is pertinent to note here that other services provided by Website owners like Blog Consultancy/Affiliate Services/SEO Consultancy etc. are already liable to Service Tax.
It is only Service Tax on digital ads which was specifically exempted from 1st July 2012 to 30th Sept 2014 and from 1st Oct 2014 – ServiceTax would be levied on these ads as well.
What does this levy of Service Tax mean for Ad Publishers?
Service Tax is a form of indirect tax which would be levied at the time of providing of service by a service provider. Let me explain this with the help of the following example.
If you check your mobile or internet bill, Service Tax is levied over and above your usage charges. This component of Service Tax does not go in the pockets of the telecom operator but is deposited with the government. As the Telecom Provider is providing you with some service, it is the responsibility of the service provider to collect the Service Tax from the service recipient and deposit the same with the government.
Just like the Telecom Provider collects the Service Tax from you and deposits the same with the government, similarly ad publishers would be required to collect this Service Tax from the advertisers and deposit the same with the government.
Service Tax would be computed as below -
Advertisement Charges Rs. 15,00,000
(Add) Service Tax @ 12.36% Rs. 1,85,400
Total Charges (incl. of Service Tax) Rs. 16,85,400
The Rs. 1,85,400 collected as Service Tax would be required to be deposited with the government.
Additional Compliance burden for Ad Publishers
In case the ad publisher does not collect Service Tax from the advertiser, it would be deemed that the amount received as advertisement charges is inclusive of Service Tax. And that is the reason you would have noticed at many places that it is written – “Service Tax extra”
Therefore, it is important for the ad publisher to collect the Service Tax from the advertiser and deposit the same with the government. The ad publisher would also be required to apply for a Service Tax Registration No. and file Service Tax Returns after every 6 months.
Deposit of Service Tax with the Govt and filing of Service Tax Returns is an additional compliance burden for all service providers except the ones who are eligible to claim service tax exemption.
Service Tax Exemption
Although Service Tax is now levied on a majority of service providers, there are still a few exemptions available which the ad publishers may be able to claim -
1. In case of Export of Services, the Service Tax is not levied.
2. If the total aggregate value of all the services provided during the year is less than Rs. 10 Lakh – the ad publisher can claim Service Tax exemption. This Rs. 10 Lakh limit is exclusive of the export services. This exemption is known as Small Scale Exemption.