New Delhi – The government clarified that the space selling for advertisement in print media will attract as much as 18% GST, if an agency plays a role of an agent of a newspaper on a commission basis and would attract 5% GST if the ad agency buys that ad space from the newspaper house and then sells that space for advertisement to various clients. In the second case, it is valid if the agency buys the ad space for ads and then sources it to various clients.
In layman terms, if an advertising agency sells space to its client, it is obligated to pay 5% GST. But on the other hand, if it sells the space on behalf of the newspaper house then, in that case, it would have to pay 18% GST on the commission that would be charged by the newspaper.
Let’s consider a scenario where a newspaper sells a unit of space that is worth ₹ 1,000 to an advertisement agency for ₹ 850 (assuming a trade discount of ₹ 150 was given). Now the advertisement agency sells the same ad space to its client for ₹ 1,000. In this case, the newspaper is liable to pay a GST of 5% on ₹ 850 (which would amount to ₹ 42.5), and the advertising agency would be liable to pay GST on the full value, i.e., ₹ 1,000 (hence a GST of ₹ 50).
On the other hand, if the ad agency plans to sell the space for advertisement while playing the role of the agent to the newspaper where it would get a commission on the sales, it would be liable to pay 18% GST on the sale commission it would receive from the newspaper. So, in this case, let’s say the ad agency sells the space to the client for ₹ 1,000 and receives a commission of ₹ 150 for initiating the sale of the newspaper. Now the ad agency would be liable to pay 18% on the sales commission it earned, i.e., ₹ 27. The input tax credit in this scenario would be 5% of ₹ 1,000, which would be available to the newspaper for the payment, i.e., the newspaper can avail input tax credit for the taxes paid by the advertising agency.
In addition to this, if the ad agency offers additional services other than those mentioned above such as designing or drafting the advertisement and this is not a part of the composite supply then this service would attract 18% GST. In cases where such a service is part of the composite services than the rate applicable for the principal shall apply (i.e., 5% GST).
Hence the payment of the taxes would be dependent upon the kind of association regarding the contract that the newspaper, advertisement agency and the client would come into.
