Government makes service tax mandate for online advertising in India

In the 2014-2015 financial budget, the Union finance minister has proposed service tax for online advertising in websites and blogs. Read this article to know more about the service tax for advertising, which includes Google AdSense and other online advertising programs and platforms.

Few days ago, the finance minister of India brought out the budget for 2014-2015 F.Y and it has got some news for the bloggers, content writers and also online advertisers. Perhaps for the first time, online advertising has been removed from the negative list of service tax exemptions and tagged under the taxable incomes. This implies that Indian bloggers, online article writers and online ad publishers will have to deduct service taxes from their over limit incomes and  clients respectively and pay to the Government treasury.

In UPA govt rule in 2012, service tax policy was revised and online ad serving in websites and blogs was declared as tax free. This made bloggers and web ad publishers to enjoy their online advertising revenue. However, as per the new revision of rules in the budget proposal, the Indian government has removed it from the service tax exemption list.

Shall we pay income tax and service tax for Google ad sense or other advertising revenue?

If your total advertising revenue (Google ad revenue+ other ad revenues) in a financial year is less than INR 10 lacs, then of course you won’t pay ST and you have the option to claim ST exemption. But if your Gross Total Income (i.e. income from salary+ income from online websites which includes the total ad revenue + income from other sources) comes under the Tax slab of that Financial year, you must be honest and pay your Income taxes in time. Again you may have revenue below 10 lacs, but if you have collected service tax from your clients, you must pay it back to the government no matter what amount you have.

Read some excellent Tax Saving tips for Indian bloggers.

How can the new service tax rules affect Google AdSense publishers and bloggers?

For FY 2014-2015, Service Tax has been a mandate in the billing of online advertising. So, how will it actually affect the existing income of both ad publishers and advertisers? Let us take an example:

1. When publishers receive fees directly from advertisers:

This means a publisher is directly dealing with the advertiser. So, when he sents an invoice to him regarding online advertising, a service tax of 12.36% must be added to the billing amount. The debtor or advertiser is required to pay the fee+12.36% amount to the payee i.e. the publisher/blogger. In simple words, the blogger acts as a middle person/agent to collect the ST amount from the advertiser  and pay it to the government.

2.  When services are provided to a foreign client:

Since this new rule is only applicable in India, advertisers don’t have to pay ST if they are giving their services to international clients. Alternatively, Foreign publishers will abide by the rules in their country.  But if a critical case happens, a professional Chattered Accountant must be consulted to guide and solve the problem.

        3. If you are a Google ad publisher:

Till date Google does not charge any amount to its AdWord advertisers. But as per the new set of rules, www.google.co.in will charge ST to its advertisers and pay it to Government from here on.

How to collect service tax for my taxable advertising income?

Pretty simple. If you have collected any ST from your advertiser, first file it and pay it to the government. Then the left amount is your own income. If its gross amount comes under the IT slab of 2014-2015, file your IT and pay it again to the government. In India, ad networks are not known to collect ST as of now. So, no one can say exactly how publishers are going to handle it.

Although the service tax is an extra amount collected separately to pay to the govt, indirectly publishers will face a great deal of mutual agreements, settlements etc. with the advertisers while billing their dues. Because advertisers will not go out of their advertising budget amount easily and cheaply. So, ultimately, it is the publishers who will have to suffer the loss. Their income is certain to decrease due to this new Service tax rules.