Clarification on GST on advertising services rendered to foreign companies: A “sigh of relief”

GST on advertising services applies under general GST framework, depending on the nature of the transaction. The advertising industry in India is a dynamic and rapidly evolving sector that plays a key role in driving consumer behavior, brand recognition, and economic growth. In this article, we will discuss about how advertisement industry in India works and GST implication thereon:

How Advertisement Industry works?

1. Structure of the Indian Advertising Industry

• Advertising Agencies:

  These are the core entities that create, plan, and execute ad campaigns. The major types of agencies include:

  • Full-Service Agencies: Provide comprehensive services from creative conceptualization to media buying (e.g., Ogilvy, DDB Mudra).
  • Creative Boutiques: Focus on the creative aspect of ads.
  • Media Buying Agencies: Specialize in buying ad space across media platforms (e.g., Madison Media, Group M).
  • Digital Agencies: Focus on online ads, social media, and performance marketing (e.g., Web Chutney, WAT Consult).
• Advertisers: These are brands, companies, and organizations that invest in advertising to promote their products or services. Major sectors include FMCG (e.g., Nestle, Pepsi), e-commerce (e.g., Amazon, Flipkart), automotive (e.g., Maruti, Tata Motors), and telecommunications (e.g., Airtel, Jio).
• Media Platforms: Ads are disseminated through various media channels:
  • Television: Still one of the most popular media for ads due to the wide reach.
  • Print: Newspapers and magazines, though their share is shrinking with digital rise.
  • Digital/Online: Social media, search engines, OTT platforms (e.g., YouTube, Instagram, Netflix), which are becoming dominant in terms of ad spend.
  • Radio: Still significant for local markets.
  • Outdoor Advertising: Billboards, transit ads, and other out-of-home (OOH) options.

2. Types of Advertisement

• Traditional Advertisement: Includes TV commercials, print ads, radio jingles, and billboards.
• Digital Advertisement: The fastest-growing segment, involving social media marketing, search engine optimization (SEO), display ads, influencer marketing, and video content.
• Celebrity Endorsements: Popular in India, with brands associating themselves with Bollywood stars, cricketers, and other celebrities (e.g., Virat Kohli endorsing Puma, Deepika Padukone for Levi’s).
• Influencer Marketing: Collaborating with social media influencers for product endorsements is becoming popular with the rise of platforms like Instagram, YouTube, and TikTok.
• Programmatic Advertising: Automated buying and selling of online ad space in real-time based on data insights.

3. Key Trends in Indian Advertising

• Shift to Digital: As India’s internet penetration grows, there’s a significant shift in ad spending from traditional media (TV, print) to digital platforms.
• Personalization and Data-Driven Ads: The use of AI and big data to tailor ads based on individual consumer behavior is becoming mainstream.
• Regional Language Advertising: With India’s linguistic diversity, brands are increasingly focusing on ads in regional languages to connect with local audiences.
• Social Responsibility and Cause-Driven Ads: Many brands have started creating purpose-driven campaigns focusing on societal issues like gender equality, environmental conservation, and health awareness.

4. Revenue Model

The advertising industry operates on a fee-based or commission-based model:

• Commission Model: Agencies earn a commission  from the media houses for placing the advertisements.
• Fee-Based Model: Agencies charge a fixed fee for creative services or media planning and buying.
• Hybrid Models: A combination of commission and fee structures, particularly in large-scale campaigns.

Implication of GST on Advertising Services

1. Rate of GST on Advertising Services:

• Broadcasting advertisements (TV, radio): The GST rate on advertising services in broadcasting media, such as television and radio, is 18%.
• Print media advertisements: Advertisements in newspapers, magazines, and journals attract 5% GST.
• Digital/Online advertisement: Advertising services provided online, including advertisements on social media platforms, search engines, etc., are taxed at 18%.
• Cinema advertisements: Advertising services displayed in cinemas are subject to 18% GST.

2. Place of Supply Rules for GST on advertising services:

• For B2B transactions: The place of supply for advertisement services is usually where the recipient of the service is located. This means that the location of the business receiving the service determines where the GST liability lies.
• For B2C transactions: In case of advertisement services provided to individuals or non-GST registered entities, the place of supply is generally the service provider’s location.

3. Input Tax Credit (ITC) for GST on advertising services:

Advertisers (recipients of advertisement services) can claim Input Tax Credit (ITC) on the GST paid, subject to certain conditions. The ITC can be claimed if the advertisements are used for business purposes and the service provider has issued a proper GST-compliant invoice.

4. Reverse Charge Mechanism (RCM):Generally, GST is payable by the service provider, but in some cases, such as when advertisement services are provided by a foreign entity (like Google or Facebook for digital advertising), the reverse charge mechanism may apply. Under RCM, the service recipient (advertiser) is required to pay the GST on advertising services on behalf of the foreign service provider.

5. Exemptions: GST on advertising services on Advertisements published by government agencies for public announcements or services may be exempt from GST, depending on the nature of the service and the agency involved.

6. GST on Advertising Services Provided to Indian Entities (Import of Services)

When an Indian business or individual receives advertising services from a foreign service provider (for example, digital advertising services provided by Google or Facebook), this is considered an “import of services” under the GST framework. The key GST provisions for this scenario include:

• GST Applicability: GST is applicable on the reverse charge mechanism (RCM), meaning the Indian recipient (importer) is required to pay GST.
• GST Rate: Typically, 18% IGST  is levied on the value of the service.
• Input Tax Credit (ITC): The Indian recipient of the service can claim the input tax credit for the GST paid on imported services, provided the services are used for business purposes.

7. GST on Advertising Services Provided by Indian Entities (Export of Services)

If an Indian business provides advertising services to a foreign client, this is considered an “export of services” under GST law. The key GST provisions for this scenario are:

• • GST Applicability: Exports of services are considered “zero-rated supplies.” This means no GST is levied on the export of services, but the service provider can either:
  • Claim a refund of input tax credit (ITC) on inputs used to provide the service, or
  • Supply the service under a “letter of undertaking” (LUT) without paying GST and claim a refund of unutilized ITC.

8. Conditions for Export of Services

For advertising services provided to foreign clients to be treated as an export of services and hence zero-rated under GST, the following conditions (as per Section 2(6) of the IGST Act, 2017) must be satisfied:

• The supplier of the service must be located in India.
• The recipient of the service must be located outside India.
• The place of supply of the service must be outside India.
• Payment for the service must be received in convertible foreign exchange or in Indian rupees wherever permitted by RBI.
• The supplier and recipient should not be merely establishments of the same entity.

If above mentioned conditions are met, the services qualify as an export of services and are zero-rated, meaning no GST is charged on the invoice, but the supplier can claim a refund of the input taxes paid on the services or goods used to provide the services.

The GST on advertising services provided to foreign clients can be zero-rated under GST if they qualify as exports of services, but if the place of supply is deemed to be in India (especially for tangible advertisements), then GST will apply.

However, GST officials are considering the place of supply of the said services as within India, thereby denying the export benefits to such advertising companies providing advertising services to foreign entities.

Accordingly, GST Circular No. 230/24/2024-GST, issued by CBIC on September 10, 2024, provides significant clarifications on the treatment of GST on advertising services provided by Indian agencies to foreign clients. This circular addresses several key issues to resolve disputes that had arisen about the place of supply and whether these services qualify as “exports” under the Goods and Services Tax (GST) framework.

As per the said circular, the Key Clarifications include:

1. Advertising Services and Export of Services: The circular confirms that advertising services provided by Indian agencies to foreign clients can be treated as “export of services” if the conditions for export under the GST law are met. In such cases, the place of supply is the location of the recipient (i.e., outside India), which qualifies the transaction for export benefits, such as zero-rated supplies​
2. Principal-to-Principal (P2P) and Principal-to-Agent (P2A) Models: The circular distinguishes between two common business arrangements in the advertising industry:
   • P2P Arrangement: Here, the Indian advertising agency is responsible for the entire advertising campaign and contracts directly with the foreign client. In this model, the place of supply is determined by Section 13(2) of the IGST Act, meaning it is based on the location of the recipient (the foreign client). As a result, the services can qualify as exports.
   • P2A Arrangement: In this case, the agency acts as a facilitator between the foreign client and media owners. The agency is considered an intermediary under Section 13(8) of the IGST Act, and the place of supply is deemed to be India, making the services subject to Indian GST
3. Recipient of Services: The circular clarifies that the recipient of advertising services is the foreign client, not any representative in India or the target audience of the advertisements. This clarification ensures that the foreign client is considered the proper recipient under Section 2(93) of the CGST Act​
4. Performance-based Services: The circular also addresses whether advertising services can be considered “performance-based services” under Section 13(3) of the IGST Act. It concludes that these services do not fall under this category, as they do not involve the physical presence of goods with the service provider

These clarifications provided much-needed clarity for the advertising industry regarding GST on advertising services, especially regarding cross-border transactions, ensuring that Indian advertising agencies can properly claim export benefits when providing services to foreign clients.

Conclusion

• GST on advertising services on Import of cross-border advertising services into India is taxable under the reverse charge mechanism (RCM).
• GST on advertising services on Export of cross-border advertising services from India is treated as zero-rated, and businesses can claim refunds on ITC.