What is Service ?
Wikipedia says: “In economics, a service is an intangible commodity”. In Simple words, service is an Action of performing work for someone in return of some service charges. That Action may be performed by an Individual or a company. So, Service is a type of economic activity which is intangible, can not be stored, and does not result in ownership. Some Examples of services: accounting, banking, Washing, Hospitality, consultancy, education, insurance, consultation, medical treatment, transportation or Tourism.
What is Service Tax ?
Service Tax is a tax imposed by Govt of India on All services provided in India. According to service tax act, it is service provider’s obligation to collect the tax and pay the same to the Govt Of India. Service tax is a Tax which is levied on the total amount received not on Income made out of that total amount. There must be an economic activity between service receiver and Provider.
Total Amount Received = Total Amount Received in defined Financial Year against services..
Income = Amount Received – Expenditure
In this article we are mainly discussing effects of Service Tax on Sale of online Advertisement Space after Govt of India Notification No. 18/2014 – Service Tax Dated 25th Aug 2014 issued by Ministry of Finance.
Online Ad sale Definition under Indian Service Tax Act
Below Definition is Quoted from Service Tax Act Page no 27 and Rule no 105 and sub rule (zzzm) .
(105) “taxable service” means any service provided or to be provided (zzzm) to any person, by any other person, in relation to sale of space or time for advertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organisation.
Explanation 1.—For the purposes of this sub-clause, “sale of space or time for advertisement” includes,—
(i) providing space or time, as the case may be, for display,advertising, showcasing of any product or service in video programmes,television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet;
(ii) selling of time slots on radio or television by a person, other than a broadcasting agency or organisation; and
(iii) aerial advertising.
Explanation 2.—For the purposes of this sub-clause, ‘‘print media’’ means,—
(i) ‘‘newspaper’’ as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867;
(ii) ‘‘book’’ as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867, but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;]
What Service Tax Says On Export of Services ?
The services should be provided or agreed to be provided in the taxable territory. Indian Taxable territory is the areas falling inside of international borders of India; hence, Service tax can not be applied on any service provided outside of Indian Territory.
Import and Export of Service :
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. ”
Why Adsense Publisher are Exempted from Service Tax ?
1. Above Condition (ii) says payment received should be in convertible Foreign Language. and Now Google Adsense Paying Ads revenue to every Indian publisher Through wire Transfer in Dollar Currency which is shown in every publisher Bank Statement. transfer made from European bank to Indian Bank 25th of every month. Google’s Smart Payment Option Save The Service Tax now.
2. Income made by Indian publishers in Dollars is against services which are delivered outside of India and hence are not taxable.
The Adsense Income which is Earned Under Indian Internet Territory :
But it is not necessary that all advertisers are from India. Hence I don’t think this is a valid logic.
Since 1st Oct 2014 Adwords India Started Adding Service Tax on Indian Advertiser Ads bill. Google is receiver of service tax and that’s why that is there liability to pay service tax to Govt. service tax on what ever income is Generated by publisher on sale of adspace to Google within Indian territory is not applicable due to Google Adwords already paid service tax which is received from Indian Advertiser Since 1st Oct 2014. No other service Tax left to pay otherwise that will become double taxation.
I know many Adsense publishers in India who are having doubts about service tax on the income made from Adsense. We know service tax is collected on Received amount. They fear of that if they just earned more than 10 lakh from adsense in this financial year then their income will fall under service tax bracket & they will have to pay at-least Rs 1,25,139 as service tax.
I must say don’t worry Google Adsense publisher are exempted from Service tax and Adsense Income will accounted as Income earned from exported services as per Service tax Rules. But Still There is no official clarification from Google Adsense yet.
Who needs to pay service tax?
Service Tax Applicable for those Website owner’s who are Selling their online Ad space to Indian Advertiser in Indian Payment Currency. These webmasters will fall under service tax bracket only when their income will go beyond 10 Lakh in given financial year 2014-2015. This 10 Lac Income include all Receiving which is earned through all services it may be either sale of online ad space or consultancy or collected Hosting fees or any other service which is not In Negative list of service tax.
Service Tax Calculation :
Service Tax Rate = 12%
+ Education Cess @ 2% of ST = 0.2%
+ Higher education Cess @ 1% of ST = 0.1%
Total Effective Service Tax = 12.36% On Recived Amount.
Example : A is person whose Yearly Income is Rs 6 lac from online ad space, Rs 1 lac from website consultancy, Rs 1 Lac from other services in India.
Tax would be calculated As :
Total Received Amount = 6,00,000 + 4,00,000 + 1,00,000 = 11,00,000
Service Tax 12.36 % of 11 Lac = 1,35,960
So above exampled Assesee will have to pay 1,35,960 rupee service tax in this financial year.
If you have any query related to Service Tax on Online Adspace, you can post your comment below. Thanks for patience, I hope the article was helpful to you.