In past couple of days I have been through many forums and answering the same question “Do we need to pay service tax on Google adsense income?”
And since I was answering only in forums I had to give answers in brief, so I could not quote on what basis I am giving my answers. Therefore I have decided to write an article and explain my views here
Advertisers (ad words) list their ads through Google and pays to them on CPC basis. Google receives the money from advertisers and pays 68% of the money to publishers as commission.
Now what should be done as per legal provisions?
Let’s say total revenue was INR 100 and publishers received INR 68 through sale of space. Now legally, publishers are in the ambit of service tax (Sale of space or time for advertisement) and should pay Service Tax @10% on INR 68 which comes out to approx 7 rupees and Google India is also liable to pay service tax on the gross revenue by claiming input credit of 7 rupees which the ad sense publishers paid.
Net outflow of Service Tax from Google India – INR 3.3 (10.30 – 7).
Total revenue to government INR 10.3 (3.3 + 7)
But what is being done?
Google India pays service tax on the gross amount charged from advertisers.
Net outflow from Google – INR 10.30
And adsense publishers do not pay anything.
Total revenue to the govt. INR 10.30 (10.3 + 0)
Why is this being done?
If Google India has to claim service tax input, it should have an invoice and as of now no publisher is issuing invoices to them.
Some CA’s are of opinion that Google is paying service tax hence publishers don’t need to pay again but there is nothing like this mentioned in our law and therefore this theory is flawed.
Now wait! There is another angle to this
CBEC in Para 1 of Circular No. 332/35/2006-TRU dated 01-08-2006 has stated that if there is no service provider and service recipient relationship, question of providing taxable service to any person by any other person does not arise. These views are expressed by the department in case of construction services, but in my opinion this principle will apply to all services.
This requires another 2 page article ‘’When will it be said to have a service provider recipient relationship?” and I am not going into that.
So publishers who are not paying service tax on that 68% can take benefit of this circular but if tax people caught hold of them, then they will have to prove that there is no relationship of service provider and service receiver between them & Google India.
Some reasons which ‘might’ prove this are listed below:-
1. The advertisers are allowed to bid for the keywords for which there are variable rates. These are fixed by Google alone. The site owners have no say in this.
2. The advertisements are placed on the blog sites or other websites who are members of AdSense. But the placements software is made by Google according to conditions fixed by them.
3. Only Google knows the charges for advertisements paid by advertisers.
Either a circular will be issued from the CBEC stating that ad sense publishers are required to pay service tax. If this happens, publishers who were not paying service tax will have to pay on retrospective basis along with 18% interest.
Or, an amendment will be made in law and under the mechanism of Reverse Charge Google India will be liable to pay service tax on the gross amount. If this happens publishers will not be liable because Google will pay on their behalf.
Peace of mind = 10.3% of your revenue.
Choice is yours.
Disclaimer: All the information provided above is for informative purposes only. You are advised to consult tax consultant before you act upon any of the above information. In spite of this, if any person acts upon this information and suffers any loss, we are not to be held liable.
[Guest article by CA Mayank Kharbanda. He can be reached at email@example.com.]