Budget 2014 which was presented by Arun Jaitley has removed the service tax exemption that was earlier available in case of Advertising on Website and Mobile Ads.

In other words, Service Tax would now be payable on Online Digital Advertisements rendered on Websites and Mobiles. The Rate of Service Tax on Online Digital Advertisements on Mobile & Website Advertisements would be the currently applicable Service Tax Rate i.e. 14. Krishi Kalyan Cess @ 0.5% and Swachh Bharat Cess @ 0.5% would also be levied. Therefore, the effective rate of Service Tax on Online Advertisements on Mobile and Website would be 15% (inclusive of Cess).

However, the date from which the Service Tax on Digital Ads would be applicable was not mentioned in the Budget 2014. At the time of making the announcement, Arun Jaitley said that the date from which this tax would be applicable would be notified later.

This date has now been notified and Service Tax on Online & Mobile Ads would be applicable from 1st Oct 2014. This date has been notified vide Notification No. 18/2014 dated 25th Aug 2014. The same has also been mentioned in Pt. 1.3 of DOF No. 334/15/2014-TRU dated 25th Aug 2014.

For all those who are unaware of the concept of Service Tax and how it works, this beginner’s guide on All about Service Tax may help.

Scenario before Budget 2014 regarding Service Tax on Digital Ads on Websites and Mobiles

Service Tax in India is levied on all types of services except certain specified services called as Negative List of Services. No Service Tax is levied on any of these specified services mentioned in the Negative List.

Earlier all types of Advertisements (except Radio and Television Ads) were a part of these specified services (Negative List of Services) and were therefore exempted from the levy of Service Tax.

However, after the introduction of Budget 2014, an Amendment has been made to Section 66D(g) and now only Advertisements on Print Media are a part of the specified services which are exempted from the levy of Service Tax.

This comes as a huge blow to the Online Industry which was trying to compete with the Print Industry. Many experts have raised their concern stating that this levy of Service Tax on Digital Advertising may impact the growth of Digital environment which is fairly new in India.

Manner of Levy of Service Tax on Digital Advertisements on Websites and Mobiles

The Service Tax on Online Advertisements would be levied at a flat rate of 15% of the Advertisement Charges. The rate of Service Tax applicable was earlier 14.5% but with effect from 1st June 2016, Krishi Kalyan Cess @ 0.5% has also been introduced and therefore the effective rate of Service Tax would now be 15%.

The levy of Service Tax can be explained with the help of the following example:-

Advertisement Charges                                   15,00,000

Service Tax @ 15% (incl Cess)                          2.25,000

Total Charges                                                     17,25,000

This is the manner in which the Service Tax would be levied. The manner of computation of Service Tax is required to be specifically disclosed in the Invoice.

This Service Tax (i.e. Rs. 2,25,000) is to be collected from the Company whose product has been advertised and is required to be paid with the Govt. However, in case this Service Tax is not collected from the Advertiser, the Service provider will have to pay this from their own pocket.

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All Service Providers on whom Service Tax is now applicable would also be required to apply for a Service Tax No. and comply with all Service Tax Rules.

Once a Service Provider applies for Service Tax Registration No., he would also be required to file Service Tax Return after every 6 months.

Exemption from Service Tax

  1. Service Tax is to be collected by all Service Providers. However, if the Combined Total Value of Advertisements received during the year from all the Advertisers (combined) is less than Rs. 10 Lakhs, Service Tax is exempted for such small Service Providers. (Recommended Read: Service Tax Exemption below Rs. 10 Lakhs).
  2. If Services are being exported outside India, No Service Tax would be levied in case of Export of Services as well.