Do Indian Adsense Publishers Need To Pay Service Tax?

Ever since the negative list of services was ammended vide Notification No. 18/2014 & 19/2014-Service Tax dated 25th August’ 2014, with an effective date of 1st October, 2014, there has been confusion among Indian adsense publishers whether they would now have to start paying service tax to the Government.

There are several articles on the Internet with arguments for and against payment of service tax on adsense income. Unfortunately, most of these articles seem to be based on incorrect information and facts.

After spending a week reading various articles, checking out case files containing decisions of Supreme Court, High Court, CESTAT, CEGAT, AAR, Advance Ruling Authority etc and after talking to experienced Chartered Accounts specializing in Service Tax, my opinion on this issue is…

“No, we do NOT have to pay service tax on adsense earnings”

The reason is, export of services is exempt from service tax. There are certain conditions to be met for a service to qualify as export of services and as adsense publishers, in my opinion, we meet all those conditions.

Here are the conditions and a short explanation about each of them

1. the provider of service should be located in the taxable territory

This is simple. An Indian adsense publisher is located in the taxable territory (inside India, except J & k)

2. the recipient of service should be located outside India

The recipient of service is Google Inc, USA and it’s located outside India. It is important to note that the recipient is NOT Google India Pvt. Ltd. or the individual adwords advertisers. In several similar cases, courts & tribunals have repeatedly ruled that in terms of service tax law, when a service is rendered to a third party at the behest of a customer, the ‘service recipient’ would be the ‘contractual recipient’ and not the third party who is effectively consuming the service.
Refer case files
1) Paul merchants Ltd. vs CCE
2) Vodafone Essar Cellular Ltd. v. CCE

In our case, Google Inc, USA is the service recipient and the adwords advertisers who are Google’s clients are the third parties. We have no contractual agreement with these (adwords) advertisers. We don’t know who they are, what price they are paying Google and what the terms of agreement are between them and Google. In effect, we sell ad space on our websites to Google Inc, USA who in turn sell the ad space to their clients (adwords advertisers)

Here’s the relevant clause from the agreement between Indian adsense publishers and Google, that shows that Google Inc is the contractual entity for Indian adsense publishers and not Google India Pvt. Ltd.

“This agreement (“Agreement”) between You and Google Inc. (“Google”) consists of these Google AdSense Online Program (the “Program”) Standard Terms and Conditions (“Terms and Conditions”).”

I’d like to emphasize again (since this is a very important point) that adsense publishers sell space on their websites, for the purpose of advertisements, to Google and NOT to Google’s clients. Google, in effect, resells this ad-space to it’s clients (through the adwords program) and to it’s partners (third party ad networks and agencies). Hence, based on the above facts, it is clear that the ‘recipient of the service’ is Google Inc., USA.

3. the service should not be a service specified in the section 66D of the Act

Sale of space for advertisement through Internet is not a service specified in the section 66D of the Act

4. the place of provision of the service should be outside India

As per the place of provision rules “The place of provision of a service shall be the location of the recipient of service. In case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.”

There are certain exceptions specified, but in my opinion as an adsense publisher we do not fall into any of those categories. Hence, in the case of an adsense publisher, the place of provision is the location of recipient of service, which is USA (outside India)

5. the payment for such service has been received by the provider of service in convertible foreign exchange

Google pays adsense publishers through wire transfer in USD. Hence this rule is met.

6. the provider of service and recipient of service are not merely establishment of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act.

This point does not apply to us.

Hence, as adsense publishers, our adsense income is treated as export of services and no service tax needs to be collected/paid.

Disclaimer: I’m NOT a Chartered Accountant and I do not offer legal advice. Information contained within this website, is not, nor intended to be, legal advice. I makes no representations, warranties, or assurances as to the accuracy or completeness of the content contained on this website or any sites linked to this site.

Indian Economic Growth & Weakness of Developed Nations

Two years ago, during a brief window of time in October 2008, there were a few days when the sudden and unexpected explosion of the Sub-Prime Mortgage Crisis was so intense that many leading economists and experts questioned whether the entire modern financial system may collapse.  Banks rely on the ability to borrow funds from each other in order to finance day-to-day operations, but after the failure of Lehman Brothers, the interbank credit market froze up.

Banks are not the only business institutions that rely on credit in order to sustain daily cash flow levels, and when the interbank credit market froze in October 2008, businesses around the world nearly failed.  In fact, if the credit markets had not loosened a little, chances are strong that, indeed, the entire global financial system would have failed.

Central Banks were fully aware of the lack of liquidity and lending in the interbank market, so it joined forces with the European Central Bank, Bank of England, and other major Central Banks around the world, and they all slashed short-term interest rate targets to all-time historical lows.  In fact, the United States interest rate has remained at 0% to 0.25%.  This incredibly low yield did not turn-off investors; moreover, capital flows into the U.S. dollar actually occurred at unprecedented rates, and a huge bull market in the U.S. dollar developed during the latter half of 2008 and the first quarter of 2009.

How Long Can Investors Earn No Money?

Due to extremely low interest rates, there is little incentive for an investor to leave funds in the United States right now.  Currently, economic conditions in the U.S. have deteriorated materially, and the economic recovery is slightly faltering. Although a double-dip recession is possible in the U.S. and other states, but that is not the most likely scenario. The most likely scenario is that the United States will enter into a multi-year period of very slow economic growth. Deflation will most likely remain a threat.

Therefore, investors have no incentive to hold U.S. dollars.  The Federal Reserve has made its dovish stance concerning the U.S. recovery very clear, and accommodative monetary conditions will not be tightened until well into 2011, and there is currently a strong chance that another round of quantitative easing will be introduced in the U.S., which will cause the dollar to fall further and investors to become increasingly hesitant concerning capital flows in the U.S. economy. Thus, if investors cannot earn yield in the U.S., where should they look?  One definite answer is India.

Indian growth over the last decade has been exceptional, and it is only expected top continue into the future.  Massive advancements in national infrastructure and technology are helping to aid an actual transformation in India.  This economic transformation of India has already drawn countless investors in search of strong growth  to the table.

Reasons to Invest in India

It is clear that developed nations are heading for a multi-year period of very slow economic growth and currency volatility in the forex market.  At the same time, developing nations such as India, China, and Brazil are all moving forward at incredible rates.  All three countries are posting GDP figures close to 10%, and most economists believe these high rates of economic growth will continue for years to come.  Each year that the developed world struggles while China, India, and Brazil advance is another year that emerging markets such as China, close the gap of economic power.

The Indian stock market reached a 2 ½ year high around 20,000 and second quarter GDP figure came out at 8.8%.  This level of growth is not only expected to continue and be sustained, but some economists believe that GDP could actually increase to about 10% by 2013-2015.  As India continues to allow deregulation and free market principles to operate, the economy should continue growing.  Two companies that should see strong growth over the mid and long-term:

  • Tata Motors – As India’s economy continues to grow, domestic demand is heating up as Indians are buying cars, houses, clothes, and other basic lifestyle upgrades.  Tata motors is India’s largest automaker and should see long-term growth.
  • HDFC Bank – The banking industry in India is gaining strong footing and is definitely bullish long-term; however, there may be some volatility in the near-term.  The Indian Central Bank has raised interest rates again in September in an attempt to curb inflation, and these interest rate hikes may continue.  This will weigh in the near-term on bank profitability as credit market tighten and demand for loans decreases, but it should be a temporary setback.

Economic growth in India is here to stay.  Incredibly strong infrastructure is combining with domestic demand and strong foreign capital flows to create a healthy state of economic growth that should continue for years to come. A Forex trading demo account can help you learn to how trade the dollar versus the Indian rupee.

Talwalkars IPO Allotment Status and Listing Date

Talwalkars IPO Allotment Status and Talwalkars IPO Listing Date are yet to be announced. Since the Talwalkars IPO has been quite heavily oversubscribed, Talwalkars IPO Allotment chances will be pretty low and definitely through lottery. If you have applied through the non institution high networth investors catgeory, your chances of allotment in Talwalkars IPO is almost non existent. However, if you have applied under the retail investor category, the chances of allotment of shares in Talwalkars IPO are much higher. The URL to check the allotment status of Talwalkars IPO will be posted here as soon as it is released. I will also update details on Talwalkars IPO allotment chances, Talwalkars IPO Listing Date, Talwalkars IPO refund details and also Talwalkars IPO grey market premium. So if you have applied in the Talwalkars IPO, keep checking this space often.

Goenka Diamond & Jewels IPO Subscription Details

Goenka Diamond & Jewels IPO Subscription Details as of today seems pretty encouraging. The institutional bidders category has oversubscribed already. Goenka Diamond & Jewels IPO has seen excellent subscription interest from high net worth individuals and hence the non institutional category in the Goenka Diamond IPO has already oversubscribed by over 7 times. I have a feeling that the Goenka Diamond and Jewels IPO is going to oversubscribe heavily. The retail investors category has not see good subscription interest till now but that is expected since retail investors usually prefer to wait and watch how the IPO performs and only place their bids on the last day of the IPO being open for subscription. Goenka IPO subscription details will be updated here everyday at market close. Goenka Diamond & Jewels IPO allotment status and allocation details will also be updated here as soon as the link to check the allotment status of Goenka IPO is available online.

Shree Ganesh Jewellery House IPO Allotment Status

Shree Ganesh Jewellery House IPO Allotment Status is likely to be released within the next few days. Retail investors are likely to get close to full allotment in the Shree Ganesh Jewellery House IPO. This is because Shree Ganesh Jewellery IPO had only just managed to oversubscribe. Shree Ganesh Jewelery IPO Allotment details will be published here and the link to check the allotment status of Shree Ganesh Jewellery House IPO will be posted here as soon as the same is published by the Link Intime, the registrar of Shree Ganesh IPO. So to check Shree Ganesh IPO Allotment details and allocation basis, do visit this page again in a few days time. I will also update Shree Ganesh Jewellery House IPO Listing date, and grey market premium that Shree Ganesh Jewellery House Limited is commanding before the listing date of the IPO. Listing gains will be moderate since Shree Ganesh Jewellery House IPO did not see huge oversubscription.

Persistent Systems IPO Allotment Status and Allocation Details

Persistent Systems IPO Allotment Status has not yet been released but one look at the Persistent Systems IPO Subscription details will tell you that the allotment of Persistent Systems IPO will be through lottery. This is because the Persistent Systems IPO has oversubscribed heavily. Retail category in the Persistent IPO has oversubscribed by about 22 times and hence the chances of allotment look very bleak. If you have applied in the Persistent Systems IPO and are waiting for the Persistent Systems IPO Allocation details to be released, please bookmark this page and visit often. The link to check Persistent Systems IPO Allotment Status online will be posted here as soon as it is available. Also you can check this page to find out the Persistent Systems IPO Listing Date, Persistent Systems IPO grey market premium, listing gains that Persistent Systems Limited is likely to provide on the listing date and other related information with regards to the Persistent Systems IPO.

Intrasoft Technologies IPO Subscription Details

Intrasoft Technologies IPO Subscription Details as of March 24 looks good. The Intrasoft Tech IPO has generated fairly good subscription interest from all classes of investors. However, it’s still early days and the IPO as yet has not oversubscribed. But looking at the subscription details of Intrasoft IPO, I’m quite sure the IPO will see a good amount of oversubscription. Hence it would be a good idea to go ahead and apply in the Intrasoft Technologies IPO. The listing gains on selling the alloted shares of Intrasoft Technologies Limited on the IPO listing date, is likely to be pretty good. So do not miss out on the Intrasoft Technologies IPO. For more updates on the Intrasoft Technologies IPO subscription details, Intrasoft Technologies IPO Listing date and Intrasoft Technologies IPO Allotment status and allocation details, do keep checking this space often

IL&FS Transportation Networks IPO Subscription Details

IL&FS Transportation Networks IPO Subscription Details presents an encouraging picture. Looks like investors are lapping up IPO issues nowadays. This is a good news since after the Reliance Power IPO, a lot of investors lost faith in applying in IPO’s for listing gains. But looking at the subscription details of IL&FS Transportation Networks IPO and other IPO’s which have closed in the recent past, it appears that the investors confidence in IPO’s has been restored. Almost all the IPO’s are getting heavily oversubscribed these days and the case of IL&FS Transportation Networks IPO is no different. If you are looking for listing gains, you should apply in the IL&FS Transportation IPO. More detail about the IL&FS IPO including the listing date, allotment status of IL&FS Transportation Networks IPO and subscription details will be updated here on a regular basis. So do check back here often to know up to date details regarding the IL&FS Transportation Networks IPO.

NMDC IPO Subscription Details

NMDC IPO Subscription Details as of today look pretty good. The NMDC IPO has almost fully subscribed with still one day remaining before the IPO closes for public subscription. NMDC IPO Allotment appears to be pretty decent as of now considering the fact that the retail investors category of NMDC IPO has not yet been fully subscribed. NMDC IPO Allotment Status will be available in a few days time. The link to check the NMDC IPO Allocation details and allotment status will be posted here as soon as it has been released by the registrar managing the NMDC IPO.

DQ Entertainment IPO Allotment Status

DQ Entertainment IPO Allotment Status will be known in a few days. If you applied in the DQ Entertainment IPO, please be advised that the allotment is quite tough to obtain. The allotment will be made on lottery basis and the allotment chances will depend on the number of shares you have applied for. DQ IPO allotment status will be available online in a few days time and the link for checking the DQ Entertainment IPO allocation online will be posted here. So to check the DQ Entertainment IPO allocation basis, check this space again after a few days. DQ Entertainment IPO Listing Date will also be updated here as soon as the listing date details are announced by the company. Since the DQ IPO has heavily oversubscribed the IPO listing gains for those looking to sell on the listing date would be very high.