In this dynamic world, people are venturing more into unconventional professions. Considerable amount of time is being spent by people in consuming content on social media platforms, and that has led to significant boom in the YouTube, blogging and affiliate marketing industry.
Being a growing field, people aren’t well versed with the indirect tax provisions on income earned by them. In this article, we would be discussing the impact of Goods and Service Tax law (“GST Law” or “law”) provision on the earnings in this profession.
Before analysing the transactions from GST point of view, let us first understand what does blogging, affiliate marketing and YouTube mean.
- Blogging is the process of writing a blog, an online journal in which one can share his thoughts about a particular subject with readers.1
- Affiliate marketing is the process by which an affiliate earns a commission for marketing another person’s or company’s products.2
- Almost two decades back google came up with the platform called YouTube which allows people to showcase their content in form of videos on any subject matter.
People uploading content on these platforms are usually referred to as bloggers, content creators and affiliates. There are various income streams through which they earn, but the major sources are as follows:
- AdSense income: AdSense is a free-of-charge, simple way to earn money by displaying ads next to your online content. With AdSense, you can show relevant and engaging ads to your site visitors3 and earn from it
- Brand promotions: Brand promotion is the marketing communication strategy to inform, persuade, convince, and influence the decision-making process of buyers when they choose a particular brand4. The person promoting the brand is being paid by the brand
- Affiliate marketing: a marketing arrangement by which an online retailer pays commission to an external website for traffic or sales generated from its referrals5
The taxability on such income under GST law is analysed in detail below.
Whether the service classifies as “Supply”
As per the provisions of GST law, tax is levied only on those transactions which qualifies to be a “supply”. Supply is defined as sale, transfer, barter, exchange, license, rental, lease, or disposal of any good, service or both made or agreed to be made for a consideration in the course or furtherance of business6. The content creators or bloggers provide a platform to the companies to advertise their goods or services and charge a consideration for the same. Similarly, affiliates also provide referrals and in turn get consideration in the form of commission. Hence, the services provided by them can be classified as supply in GST law and to determine the taxability we need to analyse in which category of service the said supply would fall in.
Amongst different category of services discussed in the GST legislation, one such relevant category is Online Information and Database Access or Retrieval services (OIDAR). These are the service whose delivery is mediated through information technology over the internet and involves minimal human intervention7 and includes electronic services such as
- Advertising on the internet
- Providing cloud services
- Provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet
- Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network
- Online supplies of digital content (movies, television shows, music and the like);
- Digital data storage
- Online gaming
In case of service of providing one’s platform for advertisement, brand promotions and referrals to different companies, the following factors are present:
- Delivery of services is mediated through internet and information technology only
- The services are impossible to provide without information technology
- Further, the services are automated and involves minimal human intervention
The services provided by the bloggers, content creators and affiliates are complying with all the conditions stated above and therefore, could be classified as supply of an OIDAR service. In the said supply, supplier of service is the blogger, content creator and affiliate; and recipient can be any of the advertising company or brand.
However, in respect of affiliate marketing, there are few voices making rounds in the market which contend that such services can also be considered as an Intermediary service under GST. We have touched upon the same later in this article.
Place of supply
To determine whether the supply provided by the supplier is a domestic supply, import of service or export of service, place of supply provisions needs to be analysed. For OIDAR supplies, as per law if the recipient and supplier of service are in different countries, then location of the recipient is the place of supply8. Similarly, in case both parties are in the same country, general provision shall prevail and place of supply of service would be location of the recipient.9
In case of AdSense, brand promotions or affiliate marketing services, if the brand or advertisement company is in India and the blogger, content creator or affiliate is also in India, the place of supply shall be the location of the brand or advertisement company, i.e., State in India and supply would be taxable at 18%10 in forward charge scheme.
In case the brand or advertisement company is out of India and the blogger, content creator or affiliate is in India, the service would classify to be export of service only if the payment is received in convertible foreign exchange and the parties involved are not mere establishment of a distinct person11. Otherwise, the service would be taxable under the forward charge @18%.
Once, the supply is classified as export of service, the supplier has two options either to cover export under Letter of Undertaking without payment of GST or pay GST and claim it as refund.
Another case could be when the OIDAR services are provided by supplier located outside India to a registered recipient located in India. In such scenario, the service would be an import of service and accordingly tax would be discharged under the reverse charge mechanism12. If the recipient is an unregistered person located in India, then the supplier located outside India shall be responsible for paying tax.13
Time of Supply
In order to determine the time for discharging the tax liability on the supply of service, provisions related to time of supply needs to be analysed.
The time of supply of the service for the forward charge transaction14 shall be the following dates:
- Earlier of date of issue of invoice or date of receipt of payment, if the invoice is issued within 30 days from the provision of service
- If the invoice is not issued within 30 days, earlier of date of provision of service or date of receipt of payment
- If the above provisions do not apply, time of supply shall be date on which the recipient shows the receipt of services in his books of accounts
When the tax is payable under reverse charge mechanism14, the time of supply shall be:
- Earlier of the following dates:
- Earlier of date of payment as entered in the books of account of the recipient or the date on which payment is debited in his bank account
- Date immediately following 60 days from the date of invoice, or any other document issued by the supplier
- Where it is not possible to determine the time of supply from the above provisions, the time of supply will be the date of entry in the books of accounts of the recipient of supply.
As per the registration provisions, every person making supply of services is required to be registered if the turnover exceeds the threshold limit15. Therefore, we can say if the content creator/blogger/affiliate is in India and making any inter-state supply or intra state supply of services, he is required to be registered under GST if his turnover exceeds the limit as per law.
Further, in case the supplier of the OIDAR services is located outside India and supplying the services to a non-taxable/ unregistered person, it is mandatory for the supplier to get itself or its representative13 registered under GST law16. Whereas, if the recipient is registered in the GST law, there is no requirement for the supplier to take registration, as the liability to discharge tax is on the recipient under reverse charge mechanism.12
Input Tax Credit (ITC)
As per GST law, input tax credit can be availed for the services and goods purchased by the taxpayer in the course of business.17 In case of forward charge, eligible credit can be availed only by the registered taxpayer. Whereas, in case where tax is discharged under reverse charge mechanism, eligible credit will be availed by the recipient only after the tax has been discharged in cash by them.
Further, in case of OIDAR supplier located outside India providing services to unregistered recipient, there is no provision of availment of input tax credit in returns required to be filed periodically as per law.
Returns to be filed
Like a regular taxpayer, the supplier is required to file GSTR-1, GSTR-3B, Annual return and reconciliation statement for the year. Further, GSTR-5A needs to be filed every month by OIDAR service providers located outside India, providing services to a person not registered in India.
Considering varied cases for taxability of the said service, application of GST provisions are summarised below:
|Location of the Service Provider||Location of the recipient||Place of supply||Taxability||Registration||Returns||ITC|
|India||India||India||Forward Charge @18%||Required||GSTR-1 GSTR-3B||Available|
|Outside India||Reverse Charge (if recipient is registered)||-||GSTR-1 GSTR-3B||Available|
|Forward charge (if recipient is unregistered)||Required||GSTR-5A||Not Available|
|India||Outside India||Outside India||Export of service||Required||GSTR-1 GSTR-3B||Available|
|Outside India||Not in ambit of GST||NA||NA||NA|
Challenge in the Affiliate Marketing Industry
As mentioned above, in the affiliate marketing industry, apart from the classification of supply as OIDAR service, there exist a contradictory view to classify the service as an intermediary service under GST Law. The ground contended to classify the same as an intermediary service is that under this arrangement, the affiliate actually facilitates the supply between a brand and its prospective customers using its referrals and increasing the traffic on the website of the brand. Accordingly, in such scenario, if the condition as per definition of the intermediary service18 is being fulfilled, the affiliate would act as an intermediary between the customer and the brand. In this case, the place of supply shall be location of the supplier19, irrespective of the fact whether the recipient or supplier is located outside India. The service would be taxable @ 18%10 instead of classifying it as export of service when the supplier is in India and recipient is outside India.
The service of providing a platform to different companies for advertising and charging consideration against it qualifies to be supply of OIDAR services in GST law and accordingly tax would be discharged as per the provisions discussed above.
As regards the contradictory view for qualifying the supply by the affiliate to be an intermediary service, the same does not seem to have gained a lot of support and we can clearly see a tilt towards classifying the same as an OIDAR service. However, the said ambiguity with respect to the classification of the supply needs to be addressed by the Government through notification, circular, etc. as the industry is growing exponentially.
- Google dictionary
- Section 7 of CGST Act 2017
- Section 2(17) of IGST Act 2017
- Section 13(12) of IGST Act 2017
- Section 12(2) of IGST Act 2017
- HSN – 99843, Entry no. 22(ii) in Notification No. 11/2017-Central Tax (Rate) dated 28-6-2017
- Section 2(6) of IGST Act 2017
- Section 5(3) of IGST Act 2017 and Notification No.10/2017-Integrated Tax (Rate) Dated 28-06-2017
- Section 14 of IGST Act 2017
- Section 13 of CGST Act 2017
- Section 22 and Section 24 of CGST Act 2017 read with Notification No. 10/2017 of Integrated tax dated 13-10-2017
(Turnover threshold for registration is 20 lakhs for all the states except for Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand for which threshold limit is 10 lakhs)
- Section 24 of CGST Act 2017
- Section 16 and 17 of CGST Act 2017
- 2(13) of IGST Act 2017
- Section 13(8) of IGST Act 2017