230/24/2024-GST — Clarification in respect of advertising services provided to foreign clients.
Summary
This circular, issued by the CBIC on September 11, 2024, clarifies how GST applies to advertising services provided by Indian companies to clients located outside of India. Simply put, it addresses when these services are considered ‘export of services’ and therefore potentially zero-rated under GST. The key point is determining the place of supply. According to the circular, if the advertising service directly benefits the foreign client's business located outside India, and the agreement specifies this, the place of supply is outside India.
This clarification primarily impacts Indian advertising agencies, marketing firms, and other businesses providing advertising and promotional services to clients in foreign countries. If your company provides these services, you need to carefully examine your agreements with foreign clients. Ensure the contract explicitly states that the benefit of the advertising service is received outside India. Without this clarity, you might be required to pay GST on these transactions, even if you believed them to be exports.
The circular doesn't introduce new deadlines but emphasizes the need for businesses to review existing and future contracts. It's crucial to align your documentation with the principles outlined in the circular to correctly determine your GST obligations. Failure to do so could lead to potential GST demands and penalties. Therefore, immediate action to review current and future contracts for clarity is advised.
Key Changes
| Change | Impact |
|---|---|
| Clarification on Place of Supply: The circular clarifies that the place of supply of advertising services provided to a foreign client is outside India when the service recipient's location is outside India. | This confirms that such services qualify as export of services, if other conditions are met, and are therefore zero-rated (subject to either claiming refund of unutilized input tax credit or exporting under LUT/Bond). |
| Emphasis on 'Use and Enjoyment' Condition: The circular reinforces the importance of the 'use and enjoyment' condition for determining the place of supply. Even if the recipient is located outside India, if the 'use and enjoyment' of the advertising service is demonstrably within India, the place of supply will be in India. | Businesses must carefully assess where the advertising service is ultimately consumed to accurately determine the place of supply and the applicable GST implications. This requires documentation showing the target audience and geographical reach of the advertisement. |
| Impact on Intermediary Services: The circular distinguishes between advertising services and intermediary services. If the Indian entity is merely acting as an intermediary between the foreign client and another advertising agency, the provisions for intermediary services apply (which generally means Place of Supply is location of Supplier). | Companies need to clearly establish whether they are providing the core advertising service or simply acting as an intermediary. Intermediary services will be taxable in India, whereas exported advertising services can be zero-rated. |