Which Mega Event Doesn't Need Sponsorship? : Understanding the GST Impacts on Sponsorship
The IPL 2024 has once again attracted top-tier sponsors, showcasing the immense value and reach of the tournament. Tata leads the pack as the title sponsor with a staggering investment of Rs. 2,500 crore. Associate partners My11Circle, Angle One, Rupay, and CEAT have collectively contributed Rs. 1,485 crore. On the broadcasting front, Disney Star Network has secured the rights for Rs. 23,575 crore, while Jio Cinema has taken the digital streaming partnership for Rs. 23,758 crore (figures sourced from Google).
Sponsorship services refer to the support provided by one entity (the sponsor) to another entity (the recipient, such as an event organizer) in exchange for the promotion of the sponsor's name, brand, products, or services. This support can be in the form of financial assistance, products, or other resources. Sponsorship services are commonly used in various events and activities, including sports, cultural festivals, educational conferences, and entertainment events, to gain visibility and enhance the sponsor's brand reputation.
Sponsorship services mean when one group (the sponsor) supports another (the sponsored) with money or other help in exchange for getting advertised. This help could be money, goods, or services.
A ‘taxable person’ under GST, is a person who carries on any business at any place in India and who is registered or required to be registered under the GST Act. However, ‘Person’ under GST as per section 2(84) includes, individuals, HUF, company, firm, LLP, an AOP/ BOI, any corporation or Government company, body corporate incorporated under laws of foreign country, co-operative society, local authority, government, trust, artificial juridical person.
Vide Notification No. 13/2017 dated 28th June, 2017, the Central Government had notified that “Services provided by way of sponsorship” to any ‘body corporate’ or ‘partnership firm’ by “any person” to “any ‘body corporate’ or ‘partnership firm’ located in the taxable territory” the whole of central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on Reverse Charge basis by the recipient of the such services.
Sponsorship services fall under the Reverse Charge Mechanism (RCM), but it's necessary to examine the supplier's and recipient's types of constitution to determine whether the transaction will be subject to RCM.
GST Implications:
Under the GST regime in India, the taxation of sponsorship services depends on the nature of the recipient:
(i) Body Corporate or Partnership Firm:
When sponsorship services are provided to a body corporate or a partnership firm located in a taxable territory, the tax liability falls under the Reverse Charge Mechanism (RCM). The recipient (body corporate or partnership firm) is responsible for paying the GST.
(ii) Other than Body Corporate or Partnership Firm:
When sponsorship services are provided to Other than Body Corporate or Partnership Firm, the tax is paid under the Forward Charge Mechanism (FCM). The service provider is responsible for collecting and remitting the GST.
Let’s understand it by an example:
Sponsorship Service to a Body Corporate (Reverse Charge Mechanism - RCM)
ABC Corp, a body corporate located in Mumbai, Maharashtra, sponsors a sports event organized by XYZ Sports Management, a service provider based in Delhi. Since the sponsorship service is provided to a body corporate located in a taxable territory, the tax has to be paid by ABC Corp under the reverse charge mechanism (RCM).
Sponsorship Service to an Individual (Forward Charge Mechanism - FCM)
Mr. Rajiv, an individual residing in Hyderabad, Telangana, sponsors a cultural event organized by CultureFest Events, a service provider based in Mumbai, Maharashtra. Since the sponsorship service is provided to an individual, the supply of service would attract normal charge, and the tax will be paid by CultureFest Events under the forward charge mechanism (FCM).
The place of supply is always crucial in deciding whether IGST, CGST, SGST, or UTGST will be charged. It depends on the place of supply and the supplier's location.
Place of supply 12(7) is extracted here with for ready reference
(7) The place of supply of services provided by way of,-
(a) organisation of a cultural, artistic, sporting, scientific, educational or entertainment event including supply of services in relation to a conference, fair, exhibition, celebration or similar events; or
(b) services ancillary to organisation of any of the events or services referred to in clause (a),or assigning of sponsorship to such events,-
(i) to a registered person, shall be the location of such person;
(ii) to a person other than a registered person, shall be the place where the event is actually held and if the event is held outside India, the place of supply shall be the location of the recipient.
Explanation . -Where the event is held in more than one State or Union territory and a consolidated amount is charged for supply of services relating to such event, the place of supply of such services shall be taken as being in each of the respective States or Union territories in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.
The registration status of the person at the place of supply plays an important role as a deciding factor. Understanding this can be clarified through examples.
For a Registered Person
• Rajiv, a registered person in Bangalore, Karnataka, hires an event management company from Mumbai, Maharashtra, to organize a cultural festival in Goa. Since Rajiv is a registered person, the place of supply is the location of Rajiv (i.e., Bangalore, Karnataka). Therefore, IGST will be charged.
• An educational institution based in Chennai, Tamil Nadu (registered), organizes a scientific conference in Hyderabad, Telangana, with the help of an event organizer from Delhi. The place of supply is Chennai, Tamil Nadu, because the educational institution is a registered person. As a result, IGST will be charged.
For an Unregistered Person
• Nikita, an unregistered individual from Jaipur, Rajasthan, hires a sports management company from Pune, Maharashtra, to organize a marathon event in Mumbai, Maharashtra. Since Nikita is unregistered, the place of supply is the place where the event is actually held, which is Mumbai, Maharashtra. Therefore, CGST and SGST will be charged as the place of supply is within the same state.
Event with Multiple Locations
A media company, registered in Lucknow, Uttar Pradesh, organizes a film festival in both Mumbai, Maharashtra, and Bangalore, Karnataka, with an event management firm from Hyderabad, Telangana. The place of supply will be in each of the respective states (Maharashtra and Karnataka) in proportion to the value for services as per the contract. IGST will be charged if there is a single consolidated charge and no specific proportion in the contract. If specified in the contract, IGST will be apportioned according to the value of services in Maharashtra and Karnataka.
GST on Donor Name Displays in Charitable Organizations (Circular No. 116/35/2019-GST dated 11th Oct,2019)
The issue has been examined regarding the levy of GST on the display of a donor's name or nameplates in charitable organizations. When individual donors provide financial help or donations to institutions like religious institutions, charitable organizations, schools, hospitals, orphanages, and old age homes, these institutions often place a nameplate or similar acknowledgment in their premises to express gratitude.
If the donor's name is displayed in a way that expresses gratitude and public recognition of the donor’s act of philanthropy, and it is not aimed at giving publicity or promoting the donor's business, then it is not considered a supply of service for a consideration (donation). There is no obligation (quid pro quo) on the part of the recipient of the donation to provide any service in return. Therefore, there is no GST liability on such considerations.
Examples where there is no taxable supply:
• “Good wishes from Mr. Rajesh” printed underneath a digital blackboard donated by
Mr. Rajesh to a charitable Yoga institution.
• “Donated by Smt. Malati Devi in the memory of her father” written on the door or floor of a room or any part of a temple complex which was constructed from such donation.
In these cases, there is no taxable supply, and hence no GST is applicable.
Compliance needs to be followed when the sponsorship service is covered under the Reverse Charge Mechanism:
Reporting in GSTR-1 (Outward Requirement): The supplier needs to mark "Supply covered under RCM" when filling out their GSTR-1.
Reporting in GSTR-3B (Liability Shift): The liability to pay GST shifts from the service provider to the service recipient. This will be reflected in both the payment section and the ITC table of GSTR-3B. Even if the supplier is not registered, but the recipient is a body corporate or partnership firm located in the taxable territory, they need to pay RCM through self-declaration, even if it is not reflected in auto populated transactions.
End Note: Ensuring Sponsorship’s GST Compliance Success
From IPL to FIFA, from small exhibitions to Vibrant Gujarat, sponsorship plays a crucial role in the success of events. Whether it's an educational event or an ICAI conference, the importance of managing sponsorships cannot be overstated. When raising invoices, it is essential to ensure compliance with relevant regulations. One common misconception is that all sponsorship transactions fall under Reverse Charge Mechanism (RCM). This is a myth; each transaction must be evaluated to determine its chargeability.
