Service tax for AdSense and other online advertising in India


In 2014-2015 financial budget, finance minister proposed service tax for online advertising. Learn more about the service tax for AdSense and other online advertising including affiliate programs.

The budget presented by the finance minister of India for 2014-2015 financial year has got some news for the bloggers. Online advertising has been removed from the negative list for service tax exemptions. This means, Indian bloggers and online publishers will have to collect service tax from their clients and pay to the Government on behalf of the clients. However, AdSense publishers are not directly affected by this for the reasons covered at the end of this article.

History of service tax for online advertising


In 2012, the UPA government had changed the service tax policy and switched to the negative list based system. Online advertising was in the negative list, which allowed the bloggers to enjoy the service tax exemption for their online advertising revenue including the AdSense revenue. However, the NDA government has removed online advertising from the negative list, as per the new budget proposal and introduced service tax for the online advertising business.

(Even though only advertising revenue was excluded from service taxes earlier, some bloggers and publishers were reporting their other online income under online advertising revenue to avoid service tax. The online revenue is sort of a gray area and it is hard to distinguish between advertising revenue and other types of online revenue. So, many publishers have been interpreting the definition of service tax for online advertising in their favor in the past.)

Read more: should we pay income tax for AdSense income

How will the new service tax rules affect AdSense publishers and bloggers


As per the new budget, online advertising is no longer in the negative list for exemption of service tax. This means, all online publishers will have to collect service tax for their online advertising services from their advertising clients, effective 2014-2015 financial year.

Let us see how this will affect bloggers and online publishers:

There are few scenarios:

Scenario 1: publishers receiving advertising fees directly from advertisers

In this case, publishers will be dealing directly with advertisers. When an invoice is sent to the advertiser for online advertising, a service tax for 12.36% on the fees needs to be added to the bill. The recipient of the service (advertiser) is supposed to pay the service tax in addition to the normal advertising cost and the blogger/publisher just acts as an agent to collect the tax from the advertiser and pay to the government.

For example, consider you are selling advertising banners on your blog for Rs 10,000 per month. With the new rule, you will have to add 12.36% service tax to the advertising fees, which will make it Rs 11,236 cost for the advertiser. The additional Rs 1,236 you collect will need to be paid by you to the government on behalf of the advertiser. Please note that his is completely different from any income tax you have to pay from your revenue of Rs 10,000.

Service tax is not applicable in case you are providing services to a foreign client, subject to many conditions. You may want to consult a chartered account to check if service tax is applicable in your case. Also, service tax is not applicable if your annual turnover is less than 1,00,000/-.

In theory, there is no additional tax burden on the publishers and bloggers in this case. However, in most cases, you will be selling your ad space for a gross amount and your advertisers may refuse to accept the extra cost for service tax. In that case, you may be forced to include service tax in your total bill. So, you may be forced to reduce your advertising rates to accommodate the extra cost for the service tax. This will indirectly affect your income.

Scenario 2: You are using an ad network like Google AdSense
If you are not dealing with the advertisers directly but using an ad network, then you are not responsible to collect the service from the customers. The ad networks, like Google AdSense, TribalFusion, Amazon affiliate program etc, are responsible to collect the service tax from the advertisers and pay to the government. The bloggers and publishers are not responsible to collect or pay service tax.

Even in the second scenario, the service taxes will not directly affect the AdSense publishers and bloggers. However, due to the additional tax burden for the advertisers, it may affect their overall advertising budget and that will ultimately affect the income of publishers.

Read some tax saving tips for Indian bloggers

Here is the official statement from the finance budget:

To broaden the tax base in Service Tax, it is necessary to prune the negative list and exemptions to the extent possible. Accordingly, the negative list has been reviewed and service tax leviable currently, on sale of space or time for advertisements in broadcast media, is being extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax. Similarly, tax is being proposed on the service provided by radio-taxis to place them on par with rent-a-cab service. These new levies will come into effect from a date to be notified after the passing of the Finance Bill

Small Scale Exemption


If your total income from advertising is below 10 lakhs during the financial year, you can optionally claim service tax exemption. However, if you have charged service tax to your clients, you are expected to pay that to the government.

How to collect service tax for advertising income


Most of the Indian AdSense publishers use Google AdSense or similar ad networks for providing advertising services. When AdWords publishers pay to Google, those payments include service tax as well. The service tax is collected by ad networks like Google AdWords.

Even though the new service tax rules will not directly affect the tax liability on the bloggers, it could indirectly affect the publishers since this will have a major impact on the advertising budget of advertisers due to their additional tax burden.

Service tax updates - December 2015


As of November 15, 2015, advertisers are liable to pay 14% service tax on their total advertising bill. The original service tax as per the budget proposal was 12.36, which was increased to 14% effective June 1, 2015. This was further increased to 14.5% from Novermber 15, 2015. When a bill is generated for the AdWords customers, 14.5% service tax will be added on top of the advertising cost. Read more about service tax for advertising through AdSense & AdWords.

Read Tax saving tips for Bloggers and Indian AdSense publishers


Article by Tony John
Tony John is a professional blogger from India, who started his first Weblog in 1998 at Tripod.com. Tony switched to blogging as a passion blended business in the year 2000 and currently operates several popular web properties including IndiaStudyChannel.com, Techulator.com, dotnetspider.com and many more.

Follow Tony John or read 639 articles authored by Tony John

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Comments

Guest Author: Satish Gandham10 Jul 2014

Hello Tony John,

1. 12.36% of 10k is Rs 1,236 not Rs 2,360.
2. Service tax exemption limit is 12L, increased last year.
3. AFIK, service tax doesn't apply when dealing with foreign clients which is whom most bloggers deal with.

You should research the third point and write a post, I think there are some grey areas there.

Author: Tony John11 Jul 2014 Member Level: Diamond   Points : 0

Satish,

Thank you for reporting the issues. I have updated the article with the necessary corrections.

Author: Amit11 Jul 2014 Member Level: Gold   Points : 4

Related issue:

Affiliate marketers post affiliate banners on their websites and get paid a commission only when a referral buys a product. Would this commission now include a service tax amount in addition to the fixed commission percentage?

Personally, all sources combined I currently do not earn more than 10L as my online income, so if my affiliate partner decides to include service tax as part of my commission, I will be left with the headache of submitting that amount to the government.

Author: Manju Tony11 Jul 2014 Member Level: Bronze   Points : 6

Amit Mehta,

Earlier, online advertising income was excluded from service tax and not "affiliate earnings". However, government hadn't clearly identified the affiliate income as a different type of income and so most publishers simply interpreted it as a sort of advertising and hence excluded it from service tax.

With the new changes, online advertising income is also within the service tax framework and hence there is no difference between affiliate earnings and advertising revenue in this context.

At this time, it is not clear who is responsible to collect service tax for affiliate earnings and advertising income in case of ad networks. Most probably the ad network/affiliate network will be responsible to collect the service tax from the advertisers and they would have to pay directly to the government. Publishers would need to worry about it only when they deal directly with third party advertisers.

Guest Author: Amit12 Jul 2014

Still a small correction:

With the new rule, you will have to add 12.36% service tax to the advertising fees, which will make it Rs 12,360 cost for the advertiser

It should be: With the new rule, you will have to add 12.36% service tax to the advertising fees, which will make it Rs 11,236 cost for the advertiser

Author: Tony John12 Jul 2014 Member Level: Diamond   Points : 0

Amit,

Thanks for reporting the mistake again. It is corrected now.

Guest Author: RN Shaikh22 Jul 2014

Hey Tony,

I want one clarification, how can we deal with Google AdSense in terms of Service tax in india as per new rule. Who would collect service tax and who will pay it behalf of us.

Can I know how other bloggers are dealing with the issue? I'm earning around $13K/month and afraid of 12.36% Service Tax.

Please clarify,

RN Shaikh

Guest Author: vijay07 Apr 2015

I am a publisher of foreign clients, with all payment from paypal in $ . So is my income also under service tax or not?



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