Whether Service Tax is Payable on AdSense Income?

With digitisation, it has become quite common to earn income from websites. One of the popular ways to earn money from website is google AdSense.

So now the common question which is asked Whether publisher has to pay service tax on AdSense income?.

Let us look at some of the Frequently Asked Questions in this regard (FAQ)

1. What is the nature of service publisher is providing?
2. Which are the parties to contract?
3. When the transaction would be construed as export of service?
4. Whether Service Tax is payable on the transaction?
5. Are there any specific form to be filed with RBI ?
6. Under which code service tax is payable ?
7. Whether Service Tax is payable if revenue is very small?

Let us address each question in detail:

What is the nature of service publisher is providing

With google AdSense the website owner normally referred to as publisher is providing his website space to allow google show the ads on behalf of its advertisers who signed up for Google Adwords service.

Once the end-user clicks on Google ads, google pays a percentage of revenue to website owner which is referred to as Google AdSense income from a website owner or publisher perspective

In a way website owner is providing advertising service to Google

Who are the parties to contract?

The parties to contract are website owner and Google. 

Some-might argue that advertisers who use google AdWords platform to reach out to potential publishers could be party to contract. 

However in our understanding, as far as publisher is concerned, he or she is dealing with Google and it’s up to Google to decide to whom it sells the advertising space.

Therefore there are only two parties to contract the website owner and Google

Whether service tax is payable on the transaction

Chargeability of service tax depends on the service provider and the service recipient. So let say,

Website owner from India signs up the agreement with Google India. Then in such a case, service tax has to be paid.

However, if the agreement is between the publisher and Google Inc., then export rules as well as place of provision rules under service tax have to be satisfied which leads to next question

When transaction would be considered as export of service

To consider the transaction as export of service, following conditions have to be satisfied:

1. The place of provision of service should be outside India
2. The service provider should be in taxable territory
3. The money should be received in convertible foreign exchange

To determine place of provision, one should refer place of provision rules. Generally place of provision is the location of service recipient.

 To conclude: For AdSense income to be considered as export of service, the contract has to be between Google Inc. and Publisher and the money should be in convertible foreign exchange

Is there any specific form to be filed with RBI?

Normally when there is export of goods, softex form has to be filed. In case of services, there is no such form specified. However at the time of receipt of money from Google, you need to specifically give purpose code to the bank or any payment processor. At that time just mention advertising services

Under which code Service Tax is payable while

Service tax has to be paid under following accounting codes

Service Tax-00440354

Swach Bharat Cess-00441493

Krishi Kalyan Cess-00441509

Whether Service Tax is payable if revenue is very small?

As per provisions of service tax, one need not pay service tax if the aggregate value of taxable service does not exceed ten lakhs. 

Now the question arises whether export of services will be also considered in the aggregate value of ten lacs?

This confusion is cleared by following explanation given in relevant notification

“aggregate value means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax liveable thereon under section 66B of the said Finance Act under any other notification”

On analysis of above it is quite clear that export of services value will not be included in determining INR 10 Lakhs value.

Therefore no service tax to be paid if the total value is less than 10 Lakhs.

Also if the service is of export in nature then also no service tax to be paid