On September 10, 2024, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 230/24/2024-GST. This update provides clear guidance on how Indian advertising agencies should handle taxes when offering services to foreign clients under the Goods and Services Tax (GST). Let’s break down the main points.
1. Are Indian Advertising Agencies Intermediaries?
A common question was whether Indian advertising agencies are considered intermediaries. This would change how their services are taxed.
- Clarification: Indian agencies are not intermediaries. They manage the full advertising process for foreign clients, including planning and ad creation. Because they work directly with the client, they don’t act as middlemen. Therefore, they aren’t subject to intermediary tax rules.
2. Where Is the Service Provided?
Businesses needed clarity on the place of supply for advertising services to foreign clients. This impacts whether the services qualify as exports.
- Clarification: The place of supply is based on the location of the foreign client. Since the client is outside India, the services are considered to be provided outside the country. As a result, they qualify as exports, making the agency eligible for tax benefits related to exports.
3. Who Is the Recipient of the Service?
There was confusion about whether the target audience in India or a representative of the foreign client could be the recipient.
- Clarification: The foreign client is the recipient. Even though people in India may see the ads, they are not considered recipients. This keeps the service eligible for export benefits.
4. Are Advertising Services Performance-Based?
Some businesses wondered if these advertising services could be classified as performance-based services, which would affect the place of supply.
- Clarification: Advertising services are not performance-based. The foreign client does not need to be present in India for the service to occur. Therefore, the rules for performance-based services don’t apply here.
5. When Are Agencies Intermediaries?
In some cases, Indian agencies may act as intermediaries. This happens when they only help foreign clients secure media space without managing the full advertising process.
- Clarification: If the agency only facilitates the purchase of media space, it acts as an intermediary. In this case, the place of supply is India, and the service is taxed in India.
Conclusion
These updates provide clear guidance on how advertising services for foreign clients are treated under GST. By confirming that agencies are not intermediaries and that the place of supply is outside India, businesses can continue enjoying export-related tax benefits.
For more information, it’s advisable to review Circular No. 230/24/2024-GST or consult a tax professional to ensure compliance.
For more information please refer below Circular:
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