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GST of 5 per cent will be levied if the advertisement agency works on principal to principal basis -- buys space from the newspaper and sells such space for advertisement to clients on its own account, a finance ministry statement said.
As an illustration, if a newspaper sells a unit of space worth Rs 100 to an advertisement agency for Rs 85 (after a trade discount of Rs 15) and the agency sells the space to client at Rs 100, the newspaper would pay 5 per cent GST on Rs 85 and the advertisement agency a similar amount of tax on Rs 100.
"However, if the advertisement agency supplies any service other than selling of space for advertisement, such as designing or drafting the advertisement, and such supply is not a part of any composite supply, the same would be liable to tax at the rate of 18 per cent," the statement said.
If such supplies are part of any composite supply, the rate applicable for the principal supply shall apply.
"Therefore, everything depends on the terms of the contract between the newspaper, advertisement agency and the client," it added.