Paying Service Tax on Google Adsense Earnings in India?

Google Adsense publishers need to pay income tax on advertising earnings in India, but there are mixed views about paying service tax in addition to income tax on these online advertising revenues in India. As more bloggers from India are generating higher revenues from advertising on their sites, it becomes an important issue.

Many chartered accountants, who are also tax experts, are not clear if service tax needs to be paid on Google Adsense earnings or similar online advertising revenues in India. Some say online advertising or “renting or selling space online” has been included in the service tax ambit since last year and you need to pay service taxes.

Service tax charged is a huge sum of 12% on your total income. Then you pay income tax on the rest of income also as per the finance budget taxation guidelines. Many see this as a double taxation on their earnings. If you fail to pay your taxes on time, then heavy interest and tax penalty can be levied.

New tax payers need to apply for a service tax number and then pay service tax every quarter along with advance income tax returns. Till last year, if your total income was less than Rs. 4 lakhs, then you need not pay service tax. I believe this limit has been raised to Rs 8 lakhs in this financial year, but you need to check this with your accountant. So only big bloggers and websites are affected.

Some discussions about this issue online -

Google Adsense Income is 12% Taxable service in India
Quotes a Finance bill 2006 sub-clause under “sale of space or time for advertisement”

(i) providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet;

Google Asked to Pay Service Tax in India Due to Ads Shown On Google Search

“The Commissionerate said, “Even mere providing or selling of space for advertisement is itself a service connected with display or exhibition of advertisements and hence will fall within the tax net as advertisement service”
The advance ruling authority pointed out that the finance ministry, in 1996, had made it clear in the context of the ‘advertising agency’ definition to the effect that ‘the scope of the service which is included in the tax net, extends to not only any service connected with the making and preparation of advertisements but also includes services connected with display or exhibition of advertisements.’

Service Tax on AdSense Earnings in India

“Yes, you can claim exemption from service tax if your service fall under export of service rules, 2005. But you will have to get yourself registered under service tax. Moreover, the payment for service must be received in convertible foreign exchange and there are other requiements also. (Not sure if you ppl are willing to go in that detail). However, if your service is treated as export service, not only you can export service without payment of service tax, you are entitled to a rebate of service tax paid by you on your input service.”

Some more resources
Official Google Adsense tax information
Service Tax : Govt. of India
Service Tax for Adsense?
Google asked to pay service tax
Services under Service Tax Net
(86 - Sale of Advertising Space or time - 1st May 2006)

If you pay service tax in India, the final returns for the year have to be filed by the 31st March of the tax assessment year. If you need to pay service tax, then you need to apply for a service tax number now.

There is still no clear guidelines about this issue yet. Maybe your accountant (CA) can advise you better. Do you pay service tax on your Google Adsense and online advertising revenue? Share your view in the comments.

Update: Poll results of reader survey.

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