GST on Blogger’s Earnings from WordAds or AdSense

This post is all about whether GST is charged on the Earning from WORDADS or ADSENSE to the Indian Blogger’s.

Business Model: WordAds & AdSense 

WordAds and AdSense both are the online advertising programs run by WordPress and Google respectively, that gives the publishers (Website owners, Bloggers etc.) an opportunity to earn a fair amount of money by allowing to show the advertisements (ads) on their websites.

All in all, there are three parties that are involved in every transaction. The first party is the customer who wants to promote their products or services by online ads on different websites. The Second party is an Online Advertising programs provider like WordPress or Google who is approached by the customer for this purpose. The Third party is the publisher who will publish the ads on their websites.

Generally, there are two transactions. First is between the customer and the WordAds, in which the wiling customer pays money in order to place their ads to the target audience. The Second is between the WordAds and the Publisher, in which WordAds pays money to the publisher for placing an ad on their websites.

However, there can be three transactions. One transaction is between the different subsidiary companies of the same online advertising program providers, like between Google AdWords and Google AdSense and the rest two transactions remain the same as above.

In the case of Publisher, AdSense sends the money based on Cost Per Click (CPC) and Cost Per Mile (CPM) and WordAds sends the money based only on CPC. AdSense and WordAds, both remit the money only after you achieve the minimum payable requirement of $100. AdSense sends the money to your Bank Account via Wire Transfer (ETF or Cheque options are also available based on your country) and WordAds sends the money to your Paypal Account only.

Now, as a publisher (Blogger or Website Owner), the real question that arises is whether GST is going to be charged on the Amount Received from WordAds or AdSense? Let us find out the same. For you to make it easy to understand with legal supporting, First, I am going to give you the Applicable Legal Provisions and then the Application of these legal provisions in case of Bloggers.

GST Implications

Supply of Service and Rate of Tax

Applicable Legal Provisions

As per section 7 of the CGST Act, 2017 the Supply inter alia includes, all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of the business.

According to section 7(5) of the IGST Act, 2017, the supply of goods or services or both, inter alia, when the supplier is located in India and the pace of supply is outside India, shall be treated as the supply of goods or services in the course of Inter-State trade or commerce.

As per section 13(2) of the IGST Act, 2017 where the location of the supplier of the services and the location of the recipient of the services is outside India then the location of the recipient shall be treated as the place of supply of service.

According to section 5 of the IGST Act, 2017 provides for levy of IGST  which provides that IGST shall be levied on all inter-state supplies of goods or services.

Application in the Case of Bloggers

In the case of bloggers, he is providing the service by selling the space for internet (or online) advertising for a consideration received from the WordAds or Google in the course or furtherance of business.

The location of the supplier (in case of blogger) is in India, and the location of the recipient (in this case WordAds or AdSense) is Outside India. Therefore, the Place of Supply of service being the location of the recipient is Outside India.

This also implies that the transaction between the blogger and the WordAds or AdSense shall be treated as the Inter-State Supply and IGST shall be Payable on such supply of service. Since it comes under the residuary category, hence the tax rate is going to be 18% and the ‘SAC Code shall be 998365’. But, there is a catch. If the same is treated as the Export of Service then the rate of tax shall be changed to 0%.

Export of Service & Zero Rated Supply

Applicable Legal Provisions

It shall be treated as Export of Service as per Section 2(6) of the IGST Act, 2017 if the following conditions are satisfied:

1. The Supplier of Service is Located in India

2. The Recipient of Service is Located outside India

3. The Place of Supply is Outside India

4. The payment for such service has been received by the supplier of service in convertible foreign exchange, and

5. The supplier of service and the recipient of the service are not merely establishments of the distinct person by Explanation 1 of Section 8 of the IGST Act. 2017

Also, as per section 16(1) of the IGST Act, 2017, Zero Rated Supply, inter alia means the export of goods or services or both.

As per section 16(2) of the IGST Act, 2017, subject to the provisions of section 17(5) of the CGST Act, 2017, the credit of input tax may be availed for making Zero-Rated Supplies, notwithstanding that such supply may be an exempt supply.

Application in the case of Bloggers

Let us now compare the above conditions of Export of Services on both, WordAds and AdSense.

ParticularsIn Case of WordAdsIn Case of AdSense
Location of SupplierIn India: As Blogger is in IndiaIn India: As Blogger is in India
Location of Recipient     Outside India: As Agreement is with Aut-O’Mattic Ltd. (Ireland Company).Outside India: As Agreement is with Google Asia Pacific Pte. Ltd. (Singapore Company)
Location of Place of Supply (as per Section 13(2) of the IGST Act, 2017)Location of Recipient: Outside India (Same as Above)Location of Recipient: Outside India (Same as Above)
Payment received in Convertible foreign Exchange Yes, as payment received in dollars in your PayPal Account Yes, as if the payment is received through Wire Transfer to your bank account.
Not Merely establishment of the Distinct Person     Yes, not an establishment of the Distinct person, as both the parties are not related to each other.Yes, not an establishment of the Distinct person, as both the parties are not related to each other.
 Based ConclusionsYes, an Export of Service as all the conditions are satisfied Yes, an Export of Service as all the conditions are satisfied

Advice: Also, If you are a blogger from India, I suggest you should also get the Foreign Inward Remittance Certificate (FIRC) issued by your bank on request and as per the guidelines issued by the Reserve Bank of India, the Purpose Code for Receipt Purposes shall be P1007 – “Advertising, Trade Fair, Market Research, and Public Opinion Poll Services”. 

Also Read: What is the Foreign Inward Remittance Certificate (FIRC)?

Government follows the simple rule “Export the Goods or Services, Not the Taxes”

Since the transaction between the blogger and the WordAds or AdSense is an Export of Service it also qualifies as the Zero-Rated Supplies. Due to this, the Rate of Tax shall now be 0% and also a blogger can apply for the Refund under the GST.

Refund under GST

Applicable Legal Provisions

By applying the crux of section 16(3) of the IGST Act, 2017, a registered taxable person who exports the services can choose any one of the two options:

1. Supply the Services under a Bond or a Letter of Undertaking (LUT) without the payment of IGST and claim the refund for unutilized Input Tax Credit (ITC), or

2. Can apply for the refund after payment of IGST within 2 years from the date of export.

As per Rule 96A of the CGST Rules, 2017, any registered person availing the option to supply services for export without payment of integrated tax shall furnish, prior to export, a bond or Letter of Undertaking (LUT) in FORM GST RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due along with the interest specified under section 50(1) within a period of –

Fifteen days after the expiry of one year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange.

Application in case of Bloggers

Practically, bloggers usually prefer to follow the LUT method under the first option.

Following are the mandatory filed required for the filing of FORM GST RFD-11 under LUT –

1. Registered Name and Number (i.e. GSTIN)

2. Address

3. Date of Furnishing

4. Signature, Date, and Place

5. Details of Witnesses (Name, Address, and Occupation)

One has to note that the LUT for the Export of Service shall be furnished on the yearly basis.

Registration Requirement & Composition Scheme

Applicable Legal Provisions

As per section 24 of the CGST Act, 2017, Notwithstanding anything contained in section 22(1), the persons making any inter-state taxable supply shall be required to be registered under this act.

As per section 35(1) of the CGST Act, 2017, inter alia, Every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of –

a) inward and outward supply of services,

b) input tax credit availed,

c) output tax payable and paid, and

d) such other particulars as may be prescribed

As per section 10(2) of the CGST Act, the registered person shall be eligible to opt for composition scheme, if he is not engaged in the supply of service other than supplies related to restaurant services.

Application in case of Bloggers

As discussed earlier, the transaction between the blogger and the WordAds or AdSense shall be treated as the Inter-State Supply. Therefore, the registration and maintenance of books of account under GST is mandatory right from the start in case of bloggers.

And also, a blogger cannot opt for composition scheme.

Conclusion

In light of the foregoing discussions, the transaction between AdSense or WordAds shall attract GST @ 18%. However, it is treated as a Zero Rated Supply due to its fulfillment of all the conditions required to qualify as the Export of Service. Hence, if you prefer to follow the LUT method, then after fulfillment of compliance requirement, no GST is required to be paid in nutshell.

Also one has to fulfill all the compliance requirement given under the GST Law which inter alia includes, mandatory registration and maintenance of the books of accounts under GST right from the start.

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