If you spend money on online advertising in India, you have to pay 14.5% service tax on your ad spends. Because “online advertising” is a service and all services attract a service tax in India. This is an indirect tax, a tax on consumption unlike a tax on income.
Online advertising was exempt from service tax for a while from 2012 to 2014 but it has come back again to give digital marketers in India a pain in the __.
So if you are spending Rs.100 on online ads and earning Rs.100 in sales, you are breaking even, right? Actually no. Because you are going to end up spending Rs.114.5 with the taxes on online advertising.
For example, when you spend money on Google AdWords or any other website in India, they will levy you extra 14.5% service tax on your bill.
This number is not shown in your ads dashboard in Google AdWords. You may be thinking that you are spending Rs.100 per conversion but in the end you will pay Rs.114.5 per conversion. (More about Google AdWords payments later in this article).