Introduction

Advertisement through Google and Facebook has increased significantly due to an increase in the number of internet users. Businesses have increased their dependence on the internet for the promotion of their business. It is a common practice followed by the business.

With the increased dependence on Google and Facebook for advertisement, the businesses must comply with the legal compliances under the Income Tax Act to avoid any penalty and prosecutions.

Compliances

TDS Compliance

The advertisers are of two types:

Registered in India
Registered outside India

Rate of TDS and Due Date

The TDS of 2% is applicable on both the above transactions under section 194C of the Income Tax Act. The tax deducted is to be deposited on or before the 7th of the following month in which Tax is deducted.

GST Rate and Net Payment

The GST rate applicable on advertisement is 18%. So, while making payment to Google (Registered in India or Outside India) following payment must be made:

Google Ad Expenses: Rs. 50,000
Add: GST @18%: Rs. 9,000
Less: TDS @2%: Rs. 1000

The amount payable after TDS would be Rs. 58,000

But in the case of Google full payment of Rs. 59,000 is made to Google and Rs. 1,000 of Tax after deducting and providing TDS certificate to Google can be claimed.

TDS Certificate

The TDS certificate in form 16A must be deposited with Google either on their email collections-in@google.com or its physical copy can be sent at Google India Pvt Ltd, 9th Floor, Building 8, Tower C, DLF Cyber City, DLF Phase 2, Gurgaon, Haryana – 122002 India.

Failure to Deduct TDS

If the business fails to deduct TDS or fails to deposit TDS then the interest of 1% per month on failure to deduct TDS and 1.5% per month of failure to deposit TDS is applicable. Also, the amount of expense is disallowed while calculating the Income in the Income Tax Return.

Equalization Levy Compliance

Introduction and Rate of Equalization Levy

Apart from the TDS compliance, the businesses must comply with the equalization levy provisions. Under these provisions, if the taxpayer is making payment to the Non-resident advertisement agency let’s say Google or Facebook, then it must deduct equalization levy @ 6% of the total payment to be made to them.

Conditions for Equalization Levy

Equalization Levy is applicable when the following conditions are satisfied:
1. Payment must be made to Non-Resident Service Provider.
2. The amount on advertisement is exceeding Rs. 1,00,000 in one financial year.

Due Date and Challan Number for Payment

The amount deducted @6% must be deposited with the government accounts on or before the 7th of the following month in which the amount is deducted. Challan No. 285 is required to be deposited the tax deducted.

Exemptions

The provisions of the equalization levy do not apply to taxpayers registered in Jammu & Kashmir.

Annual Compliances under Equalization Levy

An Annual Return is required to be filed. This return is required to be filed annually and is to be filed in Form No. 1 on or before 30th June of the next financial year. This annual return is to be verified by the authorized person.

The due date for FY 2020-21 is extended from 30th June 2021 to 31st December 2021.

Failure to Deduct

If there is a delay in depositing the equalization levy then the interest of 1% per month on to deposit amount is applicable. Also, the amount of expense is disallowed while calculating the Income in the Income Tax Return.

You can also read this other article for more details