India: Media And Entertainment Industry - India Tax Landscape

Last Updated: 18 October 2016
Article by Deloitte  

Overview

The Indian Media and entertainment industry is a sunrise sector with a rapid growth curve. In 2015, the industry grew at 11.76% with a market size of USD 19 billion (INR 1,281 billion1 ). Overall, the industry is expected to grow at CAGR of 13.98% till 2018. By 2025, the industry is expected to attain a market size of USD 100 billion (INR 6,743 billion). India is globally the fifth largest Media and entertainment market.

The global Media and entertainment industry is expected to touch a market size of USD 2.14 trillion in 2020. The United States of America's Media and entertainment industry is the world's largest and is expected to be valued at USD 723 billion by 2018.

Media and entertainment is one of the sectors identified by the Indian Government under "Make in India" initiative.

The key sub-sectors of the Media and entertainment industry are outlined below:

Television, print, and films are the three largest sub-sectors in India. Key demographics of the Indian Media and entertainment industry are outlined below:

  • India is the world's second largest television market with 168 million television households and 890 television channels approximately (including 400 news and current affairs channels approximately).
  • India has the world's largest film industry in terms of tickets sold and number of films produced (more than 1,250 films are produced yearly in more than 20 languages).
  • Globally, India has the biggest newspaper market with more than 100 million copies sold daily and more than 100,000 registered newspapers.

The Ministry of Information and Broadcasting is the apex body for formulation and administration of the rules, regulations and laws relating to information, broadcasting, press, and films in India.

Foreign direct Investment

The foreign direct investment (FDI) inflows in the information and broadcasting sector for the period April 2000 to December 2015 stands at USD 4.55 billion. In India, FDI can be made under two routes — the automatic route (i.e. no approval of Government is required) and under the Government route (i.e. approval of the Government is required). Under the Government route, it is necessary to obtain a prior approval of the Foreign Investment Promotion Board. Recently, the Indian Government has further liberalized the FDI policy for the Media and entertainment industry. The current FDI sectoral limits for the Media and entertainment industry are tabulated as follows:

FDI in above sectors is also subject to compliance with the policy, guidelines, regulations of the Ministry of Information and Broadcasting. With respect to the sub-sectors not listed above, FDI is permissible up to 100% under the automatic route, e.g. films.

The Government has, on 20 June 2016, announced several amendments in the FDI Policy including changes in broadcasting sector. It is proposed to permit 100% FDI under automatic route in broadcasting carriage services (for activities mentioned in point 1.1 above) as against present limit of 49% under automatic route and beyond 49% under Government route. Formal amendments to the FDI Policy and Regulations under Foreign Exchange Management Act giving effect to the said announcement is awaited.

Tax

The key direct tax and indirect tax issues in respect of the Indian Media and entertainment industry have been outlined as follows:

Broadcast

Advertising on television channels

  • Typically, three parties are involved for advertising arrangements on television channels, namely – broadcaster, advertising agency, and advertiser. Payments are made by the advertiser to the advertising agency and by the advertising agency to the broadcaster.
  • The Central Board of Direct Taxes (CBDT) has clarified that withholding tax as contractual payments (i.e. 2%) would be applicable for the first payment (i.e. by advertiser) and there would be no withholding tax on the second payment (i.e. by advertising agency).
  • Recently, the CBDT has clarified regarding the withholding tax applicability on "the fees/charges taken or retained by the advertising agency" i.e. whether the same is in the nature of discount or commission. If this amounts to commission, withholding tax at 10% is applicable. It has been clarified that withholding tax would not be attracted on above payments made by the broadcaster to the advertising agency or on amounts retained by the advertising agency for booking, procuring, and canvassing advertisements.
  • The above clarifications are also applicable for the print segment advertisement arrangements.

Withholding tax on band placement Fees

  • Broadcasters pay channel/band placement fees to multi-system operators/cable operators for placing their channels on a preferred frequency/band to enhance viewership of the channel.
  • The Revenue authorities have adopted a position that band placement fees are in the nature of royalty. Accordingly, it is necessary to deduct withholding tax at 10%.
  • The Tribunal has upheld the taxpayer's contention of withholding tax at 2% as contractual payments but still this issue continues to be subject matter of litigation.

Service tax on band placement fees

  • Services provided by cable operators or multi-system operators to broadcasters for placing their channels on a preferred frequency are not covered in the negative list or exemption notifications and are accordingly subject to service tax.

Production of content

  • Broadcasters make payments to production houses for production of content which is telecast on their channels.
  • Recently, the CBDT has clarified that in case such content is produced as per specifications of the broadcaster, the same is considered as works contract and withholding tax at 2% would be applicable.
  • I n case the broadcaster acquires only the broadcasting rights for the content already produced by the production house, the same is not considered as works contract and other provisions of withholding tax would have to be evaluated such as royalty, fees for technical services (withholding tax rate for royalty and fees for technical services is 10%).

Content cost

  • A major cost for the broadcasters is in respect of content (commissioned or licensed). The taxpayers claim such cost as a revenue expenditure deductible in the first year or over the license period. In a few cases, however, the Revenue authorities treated such content cost as an intangible asset entitled to depreciation at 25%.
  • The taxpayer's method of accounting and tax treatment adopted has been upheld by the Tribunals and the Revenue authorities' position for grant of depreciation instead has been rejected in the said cases.

Dual taxation on copyright Transactions

  • The declared list of services, inter alia, includes 'temporary transfer or permitting the use or enjoyment of any intellectual property right' (IPR), thus being liable to service tax.
  • Almost all State Governments across India have classified "copyright" as goods and levied value added tax (VAT) on such transfer or licensing of copyright.
  • Levy of dual tax being service tax and VAT on the IPR transaction unduly increases the cost of doing business, especially if they are not available as credit to the buyer.
  • One could argue that the definition of 'declared service' under the service tax law is amply clear, but there is protracted litigation on what could be construed as 'transfer of right to use'. This could result in accelerating the dispute on dual taxation; the industry would end up paying both the taxes on conservative basis to mitigate interest and penal consequences. Goods and Services Tax (GST) could amicably address this issue of dual taxation.

Withholding tax on transponder fees

  • Broadcasters make payments for transponder fees to satellite companies for transmission of television signals.
  • The royalty definition under the domestic tax laws was amended in the year 2012 retrospectively to include transmission by satellite. Subsequently, the High Court held that payments for transponder fees are royalty under the domestic tax laws in view of the above retrospective amendment.
  • In case such payments are made to nonresidents, the Revenue authorities are adopting a position that the amended definition of royalty is applicable even to the tax treaty and, accordingly, transponder fees received by nonresidents are taxable in India under the tax treaty.
  • The Tribunal held that the payments for transponder fees are taxable as royalty even under the tax treaty while recently another High Court has ruled in favour of the taxpayer holding that the Parliament cannot amend international treaty unilaterally. The High Court has further ruled that payment for digital broadcasting services through a transponder should not be considered as royalty. Accordingly, one needs to wait and watch the developments in this space.

Indirect tax on transponder fees

  • Satellite companies located in India pay service tax on transponder fees received from broadcasting companies. However, in cases where such satellite companies are situated outside India, the taxability of the transaction needs to be analyzed from the perspective of Place of Provision of Services Rules, 2012 (POPS Rules).
  • Interestingly, a question was raised before the Court as regards VAT applicability on such transponder fees.

The High Court held that since the agreement was entered into within Karnataka, there was a 'transfer of right to use goods', namely 'space segment capacity of the transponder' in a satellite, thereby, qualifying as 'deemed sale' and liable to VAT. Thus, the issue again boils down to applicability of VAT vis-à-vis service tax on transponder fees.

Foreign telecasting companies

  • A foreign broadcaster telecasting its channel in India is mandatorily required to appoint an Indian company as its representative in view of the guidelines issued by the Ministry of Information and Broadcasting.
  • Such foreign broadcasters earn advertisement and subscription revenues from India. The Tribunal held the broadcaster (USA company) to have a dependent agent permanent establishment in India and, accordingly, considered its advertisement revenues taxable in India. Additionally, the matter was sent back to the Revenue authorities to examine whether subscription revenues are taxable as royalty.
  • Taxability of foreign broadcasters has been a matter of litigation between the Revenue authorities and taxpayers in several cases. The decision mentioned above is the most recent development on this front.
  • In such cases, another issue arises regarding the profits attributable to India in case the foreign broadcaster has a permanent establishment in India.

Earlier based on a Circular issued by the CBDT, 10% of advertisement revenues of the foreign broadcaster (after reducing commission payments) were considered as taxable income in case such foreign broadcaster did not have a permanent establishment in India. This Circular was subsequently withdrawn in the year 2001.

Direct-to-home service

  • Direct-to-home (DTH) service has two aspects – service aspect and entertainment aspect. There are two separate and distinct taxable events in respect of each of the two aspects.
  • Service tax is payable on service aspect. Since DTH provides performances, films or programmes to viewers, the State Government also levies entertainment tax on such service. Thus, DTH service provider is also subject to dual taxation being service tax and entertainment tax leading to a dual tax burden upon the industry.

Set-top boxes

  • Sale of set-top boxes has been a litigative matter as to whether consideration should be included in the service portion of DTH service or only VAT should be applicable as sale of goods.
  • In some of the judicial decisions, the High Courts held that sale of set-top boxes should attract VAT and not service tax. There are also disputes with regard to inclusion of set-top box value for the purpose of entertainment tax levy.
  • In the recent Union Budget 2016-17, customs duty on digital head-ends and set-top boxes is reduced to 10%. This is a positive development for DTH and cable operators and could lead to reduction in prices of set-top boxes.

Entertainment tax

  • In most of the States in India, cable operators are liable to pay entertainment tax and questions were raised as to whether such tax paid is to be included in the value of taxable service for the purpose of discharging service tax liability.
  • The Central Board of Excise and Customs (CBEC) has clarified that entertainment tax collected and paid to the Government would not be included in the value of taxable service, provided the cable operator indicates the entertainment tax element on the bill raised upon the customer.

Print

Foreign news agencies/newspapers

  • Foreign news agency or newspaper/ magazine/journal houses typically have a presence in India to facilitate collection of news from India.
  • Income of such foreign news agency or newspaper/magazine/journal houses should not be taxable in India with respect to activities confined to collection of news and views in India for transmission out of India based on an exemption under the domestic tax laws.
  • From a tax risk management perspective, it is of outmost importance that the activities in India of such foreign news agency or newspaper/magazine/journal houses are limited to collection of news or views.

Service tax on news agencies/ Journalist

  • Mega exemption notification, under service tax, provides an exemption to any service provided, by way of collecting news, or any service provided, by way of providing news to any person, by a specified person. Such services are exempt from payment of service tax.
  • The said specified service providers are independent journalists, Press Trust of India, and United News of India. The above entry makes it clear that the service provided by stringers, both Indian as well as foreigners would be outside the purview of service tax.

Additional depreciation

  • Additional depreciation of 20% is allowable to taxpayers engaged, inter alia, in the business of manufacture or production of an article or thing. An issue arises whether additional depreciation is allowable to taxpayers in the business of publishing newspapers.
  • The Tribunal held in favour of the taxpayer and concluded that newspapers/periodicals are distinct commodity than paper, printing ink and other ingredients used. Since a new commercial product comes into existence, the process involved for such transformation amounts to production and manufacture and accordingly, additional depreciation should be allowed.

Service tax on print media

  • Sale of advertisement space in print media is not liable to service tax. 'Print media' is defined to mean newspaper and book (not including business directories, yellow pages, trade catalogues for commercial purposes). Thus, print media houses do not pay service tax on majority of advertising revenue earned.
  • However, corresponding service tax exemption is not extended to the service providers (except a few) who provide services to such print media houses. This results in additional (service tax) cost to print media houses on services availed.

Newsprint

  • Print media houses typically use newsprint for printing newspaper and currently import nearly 25%-30% of the newsprint into India. The Government has exempted basic customs duty on newsprint (from existing 5% to 0%), thereby reducing raw material cost for manufacture of paper, paperboard and newsprint.
  • While this could marginally reduce the cost, it could also result in newsprint being dumped into India by overseas suppliers and adversely impact the domestic newsprint manufacturers. The registered newsprint manufacturers may not be able to sell their product competitively and there could be large quantum of imports adding to the burning foreign exchange outgo issue and revenue loss to the country.

Advertising in print

  • As discussed earlier under broadcast section.

Download >> Media And Entertainment Industry - India Tax Landscape

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions