GST for Advertising & Agency Business — Complete Compliance Guide (Creative, Digital Marketing & Influencer Agencies 2025)

Introduction: The ₹14 Lakh GST Demand That Almost Shut Down a Digital Agency

Rahul’s story (real case, name changed):

Rahul runs a digital marketing agency in Mumbai (₹3.5 crore annual revenue). Services: Social media marketing, Google Ads management, influencer campaigns, creative design.

August 2024:

GST Notice arrives: Section 73 (Show Cause Notice) — demanding ₹14 lakhs (₹9.5L tax + ₹4.5L interest/penalty).

Rahul’s panic: “I filed all returns on time! What could possibly be wrong?”

The 5 mistakes (that Rahul didn’t know were mistakes):

Mistake 1: Charged GST on Full Invoice (Agency Fee + Ad Spend)

Rahul’s billing (typical client invoice):

Social Media Marketing - Monthly Package
Agency Management Fee: ₹2,00,000
Facebook Ads Spend: ₹5,00,000
Google Ads Spend: ₹3,00,000
─────────────────────────────────────
Sub-total: ₹10,00,000
GST @18%: ₹1,80,000
─────────────────────────────────────
Total: ₹11,80,000

Rahul’s understanding: “I provide digital marketing service—charge GST on everything.”

Dept’s view: Ad spend (₹8L) is pure reimbursement (you spent ₹8L on client’s behalf—Facebook/Google charged them via you). GST should be ONLY on agency fee (₹2L), not ad spend.

Correct billing:

Agency Management Fee: ₹2,00,000
GST @18%: ₹36,000
Ad Spend (Reimbursement): ₹8,00,000 (No GST)
─────────────────────────────────────
Total: ₹10,36,000

Rahul’s error over 2 years:
Charged GST on ₹1.2 crores ad spend (should’ve been exempt as reimbursement).
Excess GST collected: ₹21.6 lakhs (18% on ₹1.2Cr).
But Rahul remitted this ₹21.6L to govt (thinking it’s his tax liability).

Dept’s issue: You over-collected GST from clients (₹21.6L), but since it’s not your taxable supply (ad spend = reimbursement), you must refund clients OR adjust future invoices. Dept wants proof you either refunded clients or corrected invoicing going forward.

Plus: Dept found Rahul claimed ITC on ad spend (₹21.6L GST paid to Facebook/Google) → If ad spend is not your supply, you can’t claim ITC → Reverse ₹21.6L ITC.

Net demand: Complex calculation, but ₹9.5L tax + interest.

Mistake 2: Claimed ITC on “Blocked Items” (Client Entertainment, Gifts)

Rahul’s expenses (with GST, claimed ITC):

Client dinners: ₹3,60,000 (GST: ₹64,800)
Diwali gifts to clients: ₹2,00,000 (GST: ₹36,000)
Agency team outing: ₹1,50,000 (GST: ₹27,000)

Total ITC claimed: ₹1,27,800

Dept’s view: Section 17(5) blocks ITC on food/beverages (client dinners), gifts, employee welfare (team outing).

Demand: Reverse ₹1.27L ITC + interest.

Mistake 3: Export of Services Claim (Foreign Client) — Rejected

Rahul had 1 US client (₹40L annual billing).

Rahul’s treatment:

Invoiced in USD
Filed LUT (Letter of Undertaking—to export without paying IGST)
Claimed export of services (0% GST)
Received payment in SWIFT (foreign currency)

Dept’s scrutiny: Is this truly “export of services”?

Test (for export of services):

✅ Client located outside India (US company—yes)
✅ Payment in foreign currency (USD—yes)
❓ Place of supply outside India?
❓ Not an “intermediary”?

Dept’s finding:
Rahul’s contract: “Agency will manage social media pages targeting Indian audience (brand’s India expansion).”

Dept’s interpretation: Service is for Indian market (even though client abroad) → Place of supply = India (Section 13(3)(b)—where service is actually performed/consumed).

Plus: Agency is “intermediary” (facilitating service between client and Indian audience/influencers) → Export exemption doesn’t apply.

Demand: Pay IGST on ₹40L (@18%) = ₹7.2L + interest.

Mistake 4: Freelancers Not Filing GSTR-1 (ITC Disallowed)

Rahul hired 15 freelancers (graphic designers, video editors, content writers) — total ₹18L invoices over 2 years.

Rahul claimed ₹3.24L ITC (18% on ₹18L).

Dept’s cross-check:
8 freelancers stopped filing GSTR-1 after 3-6 months.

Invoices from these 8 (₹8L): No longer in Rahul’s GSTR-2B (retroactively removed).

Demand: Reverse ₹1.44L ITC (18% on ₹8L) + interest.

Mistake 5: Wrong HSN/SAC Code (Used Generic “9997”)

Rahul’s invoices: SAC code 9997 (“Other professional, technical and business services”—catch-all).

Dept’s view: Advertising/marketing has specific SAC codes:

998361: Advertising services
998365: Market research and public opinion polling services
998366: Other advertising services

Using wrong SAC: Red flag (looks like you’re hiding nature of service OR don’t know compliance).

Demand: No direct penalty for wrong SAC, but triggers deeper scrutiny → All above issues discovered during detailed audit.

Total demand: ₹14 lakhs (₹9.5L tax + ₹4.5L interest/penalty).

After we intervened:

Step 1: Explained “pure agent” concept (ad spend = reimbursement IF properly documented—client approves ad spend, invoices in client’s name or clear agency agreement).
Step 2: Provided 2 years of Facebook/Google Ads invoices (showing ads billed to client, Rahul just facilitated payment).
Step 3: Corrected billing methodology going forward (separate agency fee + ad spend on invoices).
Step 4: Client entertainment/gifts ITC: Reversed ₹1.27L voluntarily (with interest).
Step 5: Export claim: Withdrew (accepted ₹7.2L IGST liability—but contested interest, showed bona fide belief, reduced to ₹3.5L).
Step 6: Freelancer ITC: Contacted freelancers, got 4 to file pending returns (₹5L invoices restored in GSTR-2B), reversed remaining ₹54K ITC.
Step 7: Updated SAC codes (all past invoices corrected in GSTR-1 amendments).

Final settlement: ₹8.2 lakhs paid (vs. ₹14L demanded) + 9 months of stress + ₹2.8L professional fees.

But saved: ₹5.8 lakhs + future compliance streamlined.

This happens to 60%+ advertising/marketing agencies who:

❌ Don’t separate agency fee from ad spend (charge GST on everything)
❌ Claim ITC on client entertainment/gifts (blocked under Section 17(5))
❌ Assume “foreign client = export” (without checking intermediary status, place of supply)
❌ Don’t track freelancer compliance (ITC time-bombs)
❌ Use wrong HSN/SAC codes (triggers scrutiny)
❌ Don’t understand reverse charge on imported services (Google Ads, software subscriptions from abroad)

The harsh truth:

Advertising/Agency industry is HIGHLY SCRUTINIZED under GST because:

💸 High vendor churn (30-50 freelancers/year—compliance tracking nightmare)
🌍 Cross-border transactions (foreign clients, imported software/tools—export vs. intermediary confusion)
🎯 Billing complexity (agency fee, ad spend, reimbursements, commission, markup—multiple models mixed)
🎁 High “blocked ITC” expenses (client entertainment, gifts, events—temptation to claim ITC wrongly)
📊 Intangible services (no physical goods—harder to prove service delivery, valuation disputes)

One billing mistake = ₹5L-20L+ GST demand + months of litigation.

This comprehensive guide covers:

GST rates & SAC codes for advertising/marketing services
Agency fee vs. ad spend (reimbursement treatment)
Billing models (commission, markup, pure agent)
ITC rules (what agencies can/can’t claim)
Export of services (foreign clients—when it applies, intermediary trap)
Place of supply (India vs. abroad—determines IGST vs. CGST+SGST)
Reverse charge (imported services—Google Ads, Facebook Ads, software)
GST on influencer payments (employee vs. freelancer vs. agency)
Freelancer/vendor compliance (ITC risk management)
Common mistakes (and how to avoid them)
Monthly compliance checklist
Real case studies

1. GST Rates & SAC Codes for Advertising/Marketing Services

GST Rate: 18% (Standard)

Applies to all advertising/marketing services:

Creative design (logo, branding, packaging)
Social media management
Content creation (blogs, videos, infographics)
Digital marketing (SEO, PPC, email marketing)
Influencer marketing
Media buying (print, TV, radio, digital)
Market research
Brand consulting
Event management (advertising-related)
Public relations

Correct SAC Codes:

DON’T use: 9997 (Other services—generic, red flag).

DO use specific codes:

Service Type	SAC Code	Description
Advertising services	998361	Creation and placement of advertising (including digital ads, print, TV, radio)
Market research	998365	Market research, public opinion polling
Other advertising services	998366	Other advertising-related services not elsewhere classified
Professional/consulting	998314	Business consulting (if branding/strategy consulting)
Graphic design	998349	Specialty design services (if standalone design, not part of ad campaign)

Most agencies: Use 998361 or 998366 (covers 90% of services).

Why correct SAC matters:

✅ Avoids scrutiny (dept sees you know your business classification)
✅ Enables ITC matching (clients claim ITC based on SAC—if wrong, mismatch)
✅ Compliance with e-invoicing (if turnover >₹5Cr, SAC mandatory, must be correct)

2. Agency Fee vs. Ad Spend (The Biggest Confusion)

Most agencies bill like this:

Invoice to Client XYZ Ltd
─────────────────────────────────────
Service: Digital Marketing - January 2025

Agency Management Fee: ₹3,00,000
Facebook Ads Spend: ₹7,00,000
Google Ads Spend: ₹5,00,000
Influencer Payments: ₹2,00,000
Content Creation: ₹1,00,000
─────────────────────────────────────
Sub-total: ₹18,00,000
GST @18%: ₹3,24,000
─────────────────────────────────────
Total: ₹21,24,000

Question: Should GST be charged on full ₹18L OR only agency fee ₹3L?

Answer: Depends on whether ad spend qualifies as “pure agent” OR “principal supply.”

Concept: Pure Agent (Section 2(26) + Explanation to Section 15)

Pure Agent = You act as agent (on behalf of client), spending client’s money (not your money).

If pure agent conditions met:

Reimbursements (ad spend, influencer payments) = Not part of your taxable value
GST charged only on agency fee

Conditions (all must be met):

✅ Client authorizes you to spend on their behalf (written agreement)
✅ Expenses incurred in client’s name (invoices from Facebook/Google in client’s name OR clear agency arrangement)
✅ Client reimburses actual cost (no markup on ad spend itself—markup only on agency fee)
✅ Invoices/documents separately identifiable (ad spend shown separately on your invoice to client, not bundled)

If all conditions met: Ad spend excluded from GST base.

Correct billing (pure agent):

Agency Management Fee: ₹3,00,000
GST @18%: ₹54,000
─────────────────────────────────────
Sub-total (Taxable): ₹3,54,000

Reimbursements (Pure Agent):
Facebook Ads Spend: ₹7,00,000 (No GST—invoiced in client's name)
Google Ads Spend: ₹5,00,000 (No GST)
Influencer Payments: ₹2,00,000 (No GST—paid on client's behalf)
Content Creation (freelancer): ₹1,00,000 (No GST—pure reimbursement)
─────────────────────────────────────
Total Invoice: ₹18,54,000
(Taxable: ₹3L; Reimbursement: ₹15L)

GST payable by agency: ₹54,000 (on ₹3L fee), not ₹3.24L (on ₹18L).

Savings: ₹2.7L GST (not charged to client on reimbursements).

If Pure Agent Conditions NOT Met:

Scenario: You buy Facebook Ads in your name (Facebook invoices you, not client) + You charge client with markup.

Example:

Facebook charges you: ₹7L (for ads)
You charge client: ₹8L (₹7L cost + ₹1L markup)

Treatment: Principal supply (you’re reselling service) → GST on full ₹8L (not just ₹1L markup).

GST: ₹1.44L (18% on ₹8L).

Rahul’s Mistake:

He charged GST on full ₹18L (agency fee + ad spend), even though ad spend should’ve been pure agent (Facebook/Google invoiced ads directly to client’s ad account, Rahul just facilitated payment).

Result: Over-collected ₹2.7L GST (on ₹15L ad spend) → Dept asked: Refund client OR prove it’s taxable supply (which it wasn’t—so he had to refund/adjust).

3. Billing Models & GST Treatment

Agencies use different models—GST treatment varies.

Model A: Commission-Based (Most Common)

How it works:
Agency charges % commission on ad spend (e.g., 15% of ad spend).

Example:

Ad spend: ₹10L
Commission: 15% = ₹1.5L
GST: 18% on ₹1.5L = ₹27,000
Total billed to client: ₹11,77,000 (₹10L ad spend + ₹1.5L commission + ₹27K GST)

GST base: Commission only (₹1.5L), not ad spend (if pure agent).

Model B: Retainer Fee (Fixed Monthly)

How it works:
Client pays fixed monthly fee (e.g., ₹2L/month) for defined services (social media management, content creation, strategy).

Example:

Monthly retainer: ₹2,00,000
GST: 18% = ₹36,000
Total: ₹2,36,000

GST base: Full retainer (₹2L).

Ad spend: If any, billed separately (as reimbursement OR commission—see Model A/C).

Model C: Markup Model

How it works:
Agency buys services (ads, influencer posts, creative work) at cost, then resells to client at cost + markup.

Example:

Facebook Ads cost (to agency): ₹5L
Markup: 20% = ₹1L
Client billed: ₹6L
GST: 18% on ₹6L = ₹1.08L
Total: ₹7.08L

GST base: Full ₹6L (this is principal supply, not pure agent—agency is reselling).

ITC: Agency can claim ITC on ₹5L cost (if Facebook/vendor gave GST invoice).

Model D: Hybrid (Retainer + Commission + Reimbursements)

Most agencies: Mix of all above.

Example invoice:

Monthly Retainer (Strategy, Management): ₹1,50,000
GST @18%: ₹27,000
─────────────────────────────────────
Commission (15% on ₹8L ad spend): ₹1,20,000
GST @18%: ₹21,600
─────────────────────────────────────
Reimbursements (Pure Agent):
Facebook Ads Spend: ₹8,00,000 (No GST)
Influencer Payments: ₹1,50,000 (No GST)
─────────────────────────────────────
Total: ₹12,68,600
(Taxable: ₹2.7L; Reimbursement: ₹9.5L; GST: ₹48,600)

Key: Clearly separate taxable components (fee, commission—GST applies) vs. reimbursements (no GST if pure agent).

4. ITC Rules for Advertising Agencies

✅ ITC You CAN Claim:

1. Office & Infrastructure:

Office rent (commercial property—18% GST)
Electricity, internet, phone (5% GST on electricity, 18% on telecom/internet)
Furniture, fixtures (12-18% GST)
Computers, laptops, servers (18% GST)

2. Software & Tools:

Adobe Creative Cloud (18% GST—if billed in India)
Canva Pro, Figma, Notion (18% GST)
CRM software (HubSpot, Salesforce—18%)
Project management tools (Asana, Monday—18%)
Email marketing tools (Mailchimp—18% if India billing)

3. Professional Services:

CA, lawyer fees (18% GST)
Consulting (branding, strategy—18%)
Freelancers (graphic designers, video editors, content writers—18% if they issue GST invoice)

4. Production Equipment:

Cameras, lighting, microphones (18% GST)
Video editing software, plugins (18%)
Stock photos, music licenses (18% if India vendor)

5. Outsourced Services:

Printing (brochures, packaging—12-18% depending on product)
Event management (for client campaigns—18%)
Courier, logistics (5-12% GST)

❌ ITC You CANNOT Claim (Blocked under Section 17(5)):

1. Food & Beverages:

Client dinners, team lunches, office cafeteria (GST paid, ITC blocked)
Exception: If you’re in food business (e.g., restaurant marketing agency providing free meal as part of campaign—then ITC allowed on THAT specific expense, not general office food)

2. Gifts:

Diwali gifts to clients (sweets, hampers—GST paid, ITC blocked)
Employee gifts (birthday cakes, awards—ITC blocked)

3. Employee Welfare:

Team outing, offsites, parties (GST paid, ITC blocked)
Health insurance, medical expenses (if GST applicable—blocked)

4. Motor Vehicles:

Cars purchased (GST paid, ITC blocked UNLESS it’s goods carriage vehicle—rare for agencies)
Exception: Cab/taxi hired for business travel (ITC allowed—but NOT if it’s your own car purchase)

5. Works Contract (Office Construction/Renovation):

If you construct/renovate own office → ITC blocked (Section 17(5)(c)—construction of immovable property)
Exception: If office is rented, renovation charges by landlord (included in rent) → ITC on rent allowed

Rahul’s Mistake:

Claimed ₹1.27L ITC on:

Client dinners (₹64.8K—blocked)
Diwali gifts (₹36K—blocked)
Team outing (₹27K—blocked)

Should’ve reversed these in GSTR-3B (Table 4D—ITC reversal).

Penalty: Dept found during audit → Reverse + interest + penalty.

5. Export of Services (Foreign Clients) — When Does It Apply?

If your client is OUTSIDE India, can you claim “export of services” (0% GST)?

Maybe. Conditions are strict.

Legal Test (Section 2(6) + Section 13):

Export of services (0% GST) if:

✅ Supplier of service is located in India (your agency—yes)
✅ Recipient of service is located outside India (client abroad—yes)
✅ Place of supply is outside India (trickiest—see below)
✅ Payment received in convertible foreign exchange (USD, EUR, etc.—yes)
✅ Supplier and recipient are NOT merely establishments of distinct persons (no related party BS—your India office ≠ your own foreign office)

If ALL met: Export = 0% GST (file LUT, no IGST payable).

If ANY fails: IGST @18% payable (not export).

Place of Supply (Most Critical Test):

Section 13(3)(b): If service is performed IN India → Place of supply = India (NOT export, even if client abroad).

Examples:

✅ Example 1: True Export

Client: US e-commerce company (selling globally, no India operations).
Service: SEO, content marketing targeting US/Europe audience.
Agency work: Done in India, but targeting non-India market.
Place of supply: Outside India (service consumed abroad).
GST: 0% (export)—file LUT, no IGST.

❌ Example 2: NOT Export (Rahul’s Case)

Client: US consumer brand (expanding to India).
Service: Social media marketing targeting Indian consumers, influencer campaigns with Indian influencers.
Agency work: Done in India, for India market.
Place of supply: India (service performed AND consumed in India—Section 13(3)(b)).
GST: IGST 18% (not export, even though client abroad + payment in USD).

❌ Example 3: Intermediary (Export Denied)

Client: UK advertising agency.
Service: Indian agency provides creative design, UK agency uses it in their campaign for UK client.
Indian agency’s role: Intermediary (facilitating service between UK agency and end client—Section 2(13)).
Rule: Intermediary services = Place of supply = Where supplier is located (India) → NOT export.
GST: IGST 18%.

How to Qualify for Export (Safe):

Scenario: Foreign client, no India operations, service targeting non-India audience.

Steps:

✅ File LUT (Letter of Undertaking)—online on GST portal (one-time, annually renewable)
✅ Invoice in foreign currency (USD, EUR—or INR with forex clause)
✅ Receive payment via SWIFT (foreign currency)
✅ Agreement mentions service for non-India market
✅ File GSTR-1 showing export (Table 6A—Exports with payment of tax, or 6B—Exports under LUT)

No IGST payable. But no ITC refund either (export is 0%, so no tax paid = no refund; ITC accumulates—use for domestic supplies OR claim refund annually if no domestic supplies).

6. Reverse Charge Mechanism (RCM) — Imported Services

If agency IMPORTS services from abroad → RCM applies.

What is RCM?

Normal GST: Service provider charges GST, you claim ITC.

RCM: You (recipient) pay GST directly to govt (service provider doesn’t charge GST).

When RCM Applies (for Agencies):

1. Imported Services (Section 5(3)):

If you buy service from foreign vendor (located outside India) → RCM @18%.

Examples:

Google Ads (if Google Ireland invoices you—common for Indian agencies)
Facebook Ads (if Meta Ireland/Singapore invoices you)
Adobe Creative Cloud (if billed by Adobe International)
Shutterstock, Envato (stock photos from abroad)
SaaS tools (foreign vendors—Mailchimp, HubSpot International billing)

RCM process:

Receive invoice from foreign vendor (USD, no GST)
Pay RCM @18% on INR equivalent (convert USD to INR at exchange rate on payment date)
Claim ITC on this RCM (if used for taxable supplies—which agencies usually do)
File GSTR-3B (Table 3.1(d)—Inward supplies liable to reverse charge)

Net impact: Pay ₹18K RCM on ₹1L service, claim ₹18K ITC → Zero net cost (but cash flow impact—pay RCM upfront, claim ITC later).

2. Legal Services, Consulting (Notified Under RCM):

Certain professional services attract RCM (even from India vendors):

Legal services (from advocates—RCM if advocate is individual/firm, not if company)
Sponsorship services

For agencies: Mostly legal services (if hiring lawyer for client contracts, IP—RCM applies).

Rahul’s Potential Issue (Not Caught, But Common):

Paid ₹5L to Google Ads (Google Ireland invoice—no GST shown).

Should’ve done:

Pay ₹90K RCM (18% on ₹5L)
Claim ₹90K ITC
Report in GSTR-3B

If he didn’t: Dept can demand ₹90K RCM + 18% interest + penalty.

Many agencies miss this (think “Google invoice has no GST, so I don’t pay GST”—WRONG, you pay RCM).

7. GST on Influencer Payments (Complex Territory)

Influencer marketing = Huge growth, murky GST treatment.

Scenario A: Influencer is Employee

Rare, but possible: Influencer on agency payroll (fixed salary).

GST: Not applicable (employer-employee = not a supply of service under GST).

But: TDS applicable (salary TDS), PF/ESI (if applicable).

Scenario B: Influencer is Freelancer (Most Common)

Influencer provides service to agency (agency hires influencer for client campaign).

GST Treatment:

If influencer registered (GSTIN):

Influencer charges agency (e.g., ₹1L for Instagram posts)
Influencer adds 18% GST (₹18K)
Total invoice to agency: ₹1,18,000
Agency pays ₹1,18K (claims ₹18K ITC if agency’s supply is taxable—which it is)

Agency then bills client:

Option 1 (Pure Agent): ₹1,18,000 reimbursement (no GST—pure agent if conditions met)
Option 2 (Markup): ₹1.5L (₹1.18L cost + markup) + GST 18% = ₹1.77L

If influencer NOT registered (turnover <₹20L):

Influencer invoices ₹1L (no GST)
Agency pays ₹1L (no ITC available)

Agency bills client:

Same options as above

Dept scrutiny: If influencer’s turnover (across all clients—not just your agency) >₹20L, they MUST register → If they didn’t, your ITC claim is at risk (invoice from unregistered person when they should be registered = ITC may be denied).

Prevention: Ask influencer for GST registration certificate (if they claim turnover <₹20L, get declaration in writing).

Scenario C: Barter (Influencer Gets Products, Not Cash)

Example: Influencer posts about client’s product (skincare brand), gets ₹50K worth products free (no cash payment).

GST Treatment (Contentious):

Dept’s view: Barter = supply (influencer provides service—promotion; client provides goods—products) → Both are taxable.

Value: ₹50K (fair market value of products OR service, whichever higher).

GST: Influencer should pay 18% GST on ₹50K service = ₹9K (if registered).

Client should pay GST on ₹50K goods (product GST rate—12-18%).

Practical reality: 90% barter deals don’t involve GST invoices (both parties ignore GST—risky if caught).

Safe practice: Treat barter as cash transaction (issue GST invoices both ways, claim ITC—net zero if both registered).

8. Freelancer/Vendor Compliance (ITC Risk Management)

Agencies work with 30-50 freelancers/vendors annually (designers, writers, editors, photographers).

Problem: If vendor stops filing GSTR-1 → Your ITC disappears.

Prevention System:

Step 1: Onboarding (Before Hiring Freelancer)

✅ Collect GST registration certificate (verify GSTIN on GST portal—active status)
✅ Check filing history (have they filed last 3 months? On GST portal: Search GSTIN → Filing status visible)
✅ Get PAN, Aadhaar, bank details (for TDS, payments)

Step 2: Monthly Compliance Tracker

Maintain Excel:

Vendor	GSTIN	Jan Filed?	Feb Filed?	Mar Filed?	Invoice Value (Last 6M)	Risk
Designer A	27XXX	✅	✅	✅	₹2,40,000	🟢 Low
Writer B	29YYY	✅	❌	❌	₹1,20,000	🔴 High (stop using)

Check monthly (by 5th): Did top 20 vendors file GSTR-3B last month?

Action: If vendor doesn’t file 2+ consecutive months → Stop giving new work OR follow up aggressively.

Step 3: GSTR-2B Reconciliation (Before Filing GSTR-3B)

Download GSTR-2B (14th of month) → Match vendor invoices → Claim ITC only on invoices in 2B.

Invoices NOT in 2B: Either vendor didn’t file GSTR-1 OR wrong GSTIN OR timing issue → Don’t claim ITC yet (wait or follow up).

9. Common GST Mistakes Advertising Agencies Make (Top 10)

❌ Mistake 1: GST on Full Invoice (Fee + Ad Spend)

Wrong: Charging 18% GST on agency fee (₹2L) + ad spend (₹8L) = ₹1.8L GST.

Right: Charge GST only on fee (₹2L) = ₹36K GST (if ad spend is pure agent reimbursement).

Savings: ₹1.44L (less GST charged to client = more competitive pricing).

❌ Mistake 2: Claiming ITC on Client Entertainment

Wrong: Client dinner ₹50K + ₹9K GST → Claimed ₹9K ITC.

Right: ITC blocked (Section 17(5))—reverse ₹9K in GSTR-3B Table 4D.

Risk: ₹9K demand + interest + penalty if caught in audit.

❌ Mistake 3: Export Claim for “India Market” Service

Wrong: Foreign client (US), payment in USD → Claimed export (0% GST).

Reality: Service targeting India market (Indian influencers, Indian audience) → Place of supply = India → IGST 18% payable.

Risk: ₹7-10L+ demand (on annual foreign client billing).

❌ Mistake 4: Ignoring RCM on Imported Services

Wrong: Bought Google Ads from Google Ireland (₹5L, no GST on invoice) → Paid ₹5L, no further action.

Right: Pay ₹90K RCM (18% on ₹5L), claim ₹90K ITC, report in GSTR-3B Table 3.1(d).

Risk: ₹90K demand + interest if caught.

❌ Mistake 5: Wrong HSN/SAC Code (Generic 9997)

Wrong: Using SAC 9997 (“Other services”) on all invoices.

Right: Use specific codes (998361—Advertising services).

Risk: Triggers scrutiny → Dept digs deeper → Finds other issues.

❌ Mistake 6: Not Tracking Freelancer Compliance

Wrong: Hired 20 freelancers, claimed ₹5L ITC, never checked if they filed GSTR-1.

Reality: 8 freelancers stopped filing after 3 months → ₹2L ITC disappeared from GSTR-2B.

Risk: ₹2L ITC reversal + interest + penalty.

❌ Mistake 7: Barter Deals Without GST Invoices

Wrong: Influencer gets ₹50K products (barter), no GST invoices exchanged.

Right: Treat as supply (both ways—influencer service invoice, client product invoice) → Exchange GST invoices.

Risk: Dept treats as suppression → ₹9K GST + penalty on influencer, GST on products from client.

❌ Mistake 8: Multi-Location Operations, Single GST Registration

Wrong: Agency has offices in Mumbai, Delhi, Bangalore → Only Mumbai GSTIN.

Right: Separate GSTIN for each state (if “additional place of business”—office, not just remote employees).

Risk: ₹10K penalty per state + ITC issues.

❌ Mistake 9: Delayed GSTR-1/3B Filing

Wrong: Filed GSTR-1 on 15th (4 days late—due 11th).

Penalty: ₹200/day (₹100 CGST + ₹100 SGST) × 4 days = ₹800.

Plus: Interest on late GSTR-3B payment (18% p.a. on tax amount).

❌ Mistake 10: No Documentation for Pure Agent Claims

Wrong: Claimed ad spend as reimbursement (no GST), but no agreement with client, no separate invoices from Facebook/Google.

Dept challenge: Prove it’s pure agent (can’t) → Demand GST on full amount.

Right: Maintain:

Client agreement (authorizing agency to spend on their behalf)
Facebook/Google invoices (in client’s name OR clear agency arrangement)
Separate line items on your invoice (agency fee vs. reimbursement)

10. Monthly Compliance Checklist for Advertising Agencies

☑️ By 5th of Every Month:

1. Download All Invoices:

Freelancer invoices (designers, writers, editors)
Software subscriptions (Adobe, Canva, tools)
Google Ads, Facebook Ads invoices (if billed separately)
Office rent, utilities

2. Vendor Compliance Check:

Top 20 freelancers/vendors: Did they file GSTR-3B last month? (Check GST portal)
Any stopped filing? Note (don’t claim ITC from them yet)

3. Download GSTR-2B:

☑️ By 10th of Every Month:

4. Prepare & File GSTR-1:

All client invoices (agency fee, commission, reimbursements—clearly separated)
Correct SAC code (998361/998366)
Export invoices (if any—Table 6B with LUT)
File online

5. RCM Entries:

Any imported services last month? (Google Ads, software from abroad)
Calculate RCM (18% on INR equivalent)
Prepare for GSTR-3B entry

☑️ By 18th of Every Month:

6. GSTR-2B Reconciliation:

Match vendor invoices (from Step 1) with GSTR-2B (invoice-wise)
ITC to claim = Only invoices in 2B
Note mismatches (follow up with vendors)

7. ITC Reversal:

Any blocked ITC expenses last month? (Client dinners, gifts, team outing)
Prepare reversal entry (GSTR-3B Table 4D)

☑️ By 20th of Every Month:

8. File GSTR-3B:

Table 3.1: Outward supply (from GSTR-1)
Table 3.1(d): RCM supplies (if any)
Table 4: ITC (from reconciliation—match GSTR-2B)
Table 4D: ITC reversal (blocked items)
Pay GST liability (output – ITC = net payable)

☑️ Quarterly:

9. Freelancer/Vendor Audit:

Review last 3 months: Any vendors consistently not filing? (Remove from approved vendor list)
Any high-value invoices from new vendors? (Verify GSTIN, filing history)

10. Pure Agent Documentation Review:

Client agreements current? (Authorizing reimbursements)
Facebook/Google Ads invoices properly filed? (In client’s name or agency arrangement documented)

☑️ Annually:

11. GSTR-9 (Annual Return):

Consolidate 12 months (all sales, ITC, tax paid)
Reconcile with books
File by Dec 31

12. GSTR-9C (If Turnover >₹5Cr):

Engage CA (₹30K-1L fee)
Reconciliation statement (books vs. GSTR-9)
CA certification

13. Export Documentation Audit:

All foreign client contracts: Reviewed (ensure “export of services” conditions met)
LUT filed? (Renew annually if needed)
FIRA filed? (if applicable—for large exports)

11. Real Case Studies (Good vs. Bad Agency GST Management)

Case Study A: Digital Agency (Good Compliance) ✅

Profile: Performance marketing agency (₹5Cr annual revenue), 25 employees, 40 freelancers.

Setup:

Hired e-commerce/agency CA specialist (₹20K/month)
Separate billing (agency fee + ad spend clearly marked on invoices—pure agent documentation)
Monthly freelancer compliance tracker (checked top 30 vendors’ GSTR-3B filing status by 5th of month)
Correct SAC codes (998361)
Filed LUT for 2 foreign clients (true exports—targeting US market)
Maintained ITC reversal ledger (client entertainment, gifts—reversed monthly in GSTR-3B Table 4D)

Result:

✅ Zero GST notices (3 years running)
✅ Full ITC claimed (₹8L annually—on software, freelancers, office)
✅ Saved ₹12L/year (by not charging GST on ad spend—pure agent treatment—more competitive pricing, won more clients)
✅ Bank loan approved (₹25L OD limit—clean GST compliance impressed bank)

Case Study B: Creative Agency (Poor Compliance—Lost ₹14L) ❌

Profile: Rahul (from introduction)—₹3.5Cr revenue.

Mistakes:

❌ General accountant (₹4K/month—cheap, but not agency specialist)
❌ Wrong billing (GST on full invoice—fee + ad spend)
❌ Claimed blocked ITC (₹1.27L on client dinners, gifts, team outing)
❌ Wrong export claim (foreign client, but India market service—IGST payable, not export)
❌ No freelancer compliance tracking (₹1.44L ITC lost when vendors stopped filing)
❌ Generic SAC code (9997—triggered scrutiny)

Result:

❌ GST notice: ₹14L demand
❌ 9 months stress (multiple submissions, hearings, appeals)
❌ ₹8.2L paid (after negotiation)
❌ ₹2.8L professional fees (to fix mess)
❌ Total loss: ₹11L (₹8.2L + ₹2.8L) over 2 years

Lesson: “Cheap accountant” cost ₹11L. Should’ve hired agency CA for ₹20K/month (₹4.8L over 2 years—saved ₹6L+).

12. Conclusion: Agency GST = Billing Discipline + Vendor Management

Key Takeaways:

✅ GST rate: 18% (use correct SAC codes—998361/998366, not 9997)
✅ Agency fee vs. ad spend: Separate clearly (ad spend = reimbursement if pure agent—no GST)
✅ Pure agent conditions: Client authorizes, invoices in client’s name, actual cost reimbursed, separately identifiable
✅ ITC blocks: Client entertainment, gifts, team outings—reverse in GSTR-3B Table 4D
✅ Export of services: Foreign client ≠ automatic export (check place of supply, intermediary status)
✅ RCM on imported services: Google Ads, Facebook Ads, software from abroad—pay RCM 18%, claim ITC
✅ Influencer payments: If registered, get GST invoice, claim ITC; if barter, exchange GST invoices
✅ Freelancer compliance: Track monthly (GSTR-3B filing status), claim ITC only if they filed GSTR-1
✅ GSTR-2B reconciliation: Before every GSTR-3B filing (match invoice-wise, claim only matched ITC)
✅ Monthly discipline: File on time (11th GSTR-1, 20th GSTR-3B), reconcile monthly (not quarterly/annual)

What good agency GST compliance gives you:

✅ Competitive pricing (no GST on ad spend = 18% savings passed to clients)
✅ Full ITC claimed (₹5L-10L annually—on software, freelancers, office)
✅ Zero notices (reconciliation prevents 95% issues)
✅ Export benefits (true foreign clients—0% GST, file LUT)
✅ Scalability (clean GST = investor/bank confidence, funding/loans approved)

What poor compliance costs:

❌ ITC losses (₹3L-10L over 2-3 years—freelancers not filing, blocked items wrongly claimed)
❌ Notices (₹5L-20L demands—export errors, ad spend GST, RCM missed)
❌ Penalties (50-100% of tax—₹10L demand = ₹20L with penalty)
❌ Client loss (if you charge GST on ad spend when competitors don’t—18% price disadvantage)
❌ Time sink (6-12 months dealing with notices—time away from winning clients, creating campaigns)

Final word for agency founders:

“Advertising GST is 50% billing structure, 50% vendor management.”

Get billing right:

Separate agency fee vs. ad spend (save 18% GST on reimbursements)
Use correct SAC codes (avoid scrutiny)
Document pure agent (agreements, invoices)

Get vendor management right:

Track freelancer compliance monthly (GSTR-3B filing status)
Reconcile GSTR-2B before filing GSTR-3B (claim only matched ITC)
Reverse blocked ITC immediately (don’t wait for audit)

Do this, and you’ll run a notice-free, ITC-optimized, export-friendly agency.

Create fearlessly. Comply smartly.

FAQs: GST for Advertising & Agency Business (30 Essential Questions)

Q1: What is the GST rate for advertising services?

A: 18% (standard rate for all advertising, marketing, creative, digital marketing services). Applies to agency fees, commissions, retainers, consulting.

Q2: What SAC code should advertising agencies use?

A: 998361 (Advertising services—creation and placement of advertising) OR 998366 (Other advertising services). Don’t use 9997 (“Other services”—generic, triggers scrutiny).

Q3: Should I charge GST on ad spend (Facebook Ads, Google Ads)?

A: No, if “pure agent” conditions met:

Client authorizes you to spend on their behalf
Ads billed in client’s name (or clear agency arrangement)
Client reimburses actual cost (no markup on ad spend itself)
Separately shown on invoice

If conditions met: Charge GST only on agency fee/commission (not ad spend).

If conditions NOT met (you buy ads in your name, resell with markup): Charge GST on full amount (ad spend + markup).

Q4: What is “pure agent” in GST?

A: Pure agent = You act as agent (on client’s behalf), not as principal (reseller).

If pure agent: Reimbursements (ad spend, third-party expenses) excluded from your taxable value (no GST on reimbursements).

Conditions (all must be met): Client authorizes, expenses in client’s name, actual cost reimbursed, separately identifiable on invoice.

Most common use: Ad spend (Facebook, Google), influencer payments (on client’s behalf).

Q5: Can I claim ITC on client entertainment expenses?

A: No. Section 17(5) blocks ITC on:

Food & beverages (client dinners, team lunches)
Gifts (to clients, employees)
Employee welfare (team outings, parties)

Even if you pay GST on these: ITC not allowed (must reverse in GSTR-3B Table 4D if wrongly claimed).

Q6: Can I claim ITC on software subscriptions (Adobe, Canva)?

A: Yes (if billed in India with GST).

Examples:

Adobe Creative Cloud India: 18% GST → ITC allowed
Canva Pro India: 18% GST → ITC allowed
Figma, Notion (India billing): 18% GST → ITC allowed

If billed from abroad (Adobe International, no India GST): Pay RCM 18%, claim ITC.

Q7: What is export of services for advertising agencies?

A: If client is outside India + Service delivered/consumed outside India → Export of services (0% GST).

Conditions:

Recipient located outside India
Payment in foreign currency
Place of supply outside India (service NOT performed in India for India market)
Not an “intermediary”

Example: US client, SEO for US market, payment in USD → Export (0% GST, file LUT).

NOT export: US client, social media for India market, Indian influencers → Place of supply = India → IGST 18%.

Q8: What is “intermediary” in GST context?

A: Intermediary = You facilitate service between two other parties (but don’t provide service yourself).

Example: UK agency hires you to provide creative work for their UK client → You’re intermediary.

Rule: Intermediary services = Place of supply = Where intermediary is located (India) → NOT export (even if client abroad) → IGST 18%.

Safe: If you provide service directly to foreign end-client (not via another agency) → Not intermediary → Can be export (if other conditions met).

Q9: Do I need to pay RCM on Google Ads / Facebook Ads?

A: If billed by Google/Meta from outside India (Ireland, Singapore): Yes, RCM @18%.

Process:

Google Ireland invoices you $1,000 (no GST)
Convert to INR (₹83,000 at ₹83/$)
Pay RCM: 18% of ₹83K = ₹14,940 (to govt via GSTR-3B Table 3.1(d))
Claim ITC: ₹14,940 (in same GSTR-3B—net zero, but cash flow impact)

If billed by Google India (rare for agencies): Google charges 18% GST → You pay, claim ITC (no RCM).

Q10: How to bill clients (agency fee + ad spend)?

A: Option 1 (Pure Agent—Recommended):

Agency Management Fee: ₹2,00,000
GST @18%: ₹36,000
─────────────────────────
Sub-total (Taxable): ₹2,36,000

Reimbursements (Pure Agent):
Facebook Ads Spend: ₹5,00,000 (No GST)
Influencer Payments: ₹1,50,000 (No GST)
─────────────────────────
Total Invoice: ₹8,86,000

Option 2 (Commission Model):

Ad Spend: ₹5,00,000 (No GST—paid directly by client to Facebook)
Commission (15% of ad spend): ₹75,000
GST @18%: ₹13,500
─────────────────────────
Total Invoice: ₹88,500

Option 3 (Markup Model—NOT Pure Agent):

Ad Spend (cost to agency): ₹5,00,000
Markup (20%): ₹1,00,000
─────────────────────────
Sub-total: ₹6,00,000
GST @18%: ₹1,08,000
─────────────────────────
Total Invoice: ₹7,08,000

Choose based on business model (pure agent saves client 18% GST on ad spend—more competitive).

Q11: Can I claim ITC on freelancer invoices?

A: Yes, if:

Freelancer is GST-registered (has GSTIN)
Freelancer issues GST invoice (with your GSTIN, their GSTIN, 18% GST)
Freelancer files GSTR-1 (invoice appears in your GSTR-2B)

If ANY fails: ITC not allowed (or may be disallowed later if freelancer stops filing).

Prevention: Check freelancer’s GSTR-3B filing status monthly (before claiming ITC).

Q12: What if my freelancer stops filing GST returns?

A: Invoice disappears from your GSTR-2B → You must reverse ITC (even if you already claimed).

Example:

Month 1: Freelancer invoices ₹1L + ₹18K GST, files GSTR-1
Month 2: Invoice appears in your GSTR-2B, you claim ₹18K ITC
Month 5: Freelancer stops filing
Month 6: Invoice removed from your GSTR-2B (retroactively)
Action: Reverse ₹18K ITC in Month 6 GSTR-3B + pay interest

Prevention: Monthly vendor compliance tracker (stop using vendors who don’t file).

Q13: How to handle influencer payments in GST?

A: If influencer is service provider (freelancer):

Influencer registered: Invoice ₹1L + ₹18K GST → You pay ₹1.18L (claim ₹18K ITC)

Influencer not registered: Invoice ₹1L (no GST) → You pay ₹1L (no ITC)

Agency bills client:

Pure agent: ₹1.18L reimbursement (no GST—if client authorized)
Markup: ₹1.5L + ₹27K GST (if you resell with markup)

Barter (influencer gets products): Exchange GST invoices (influencer: service invoice; client: product invoice—both pay GST).

Q14: Do I need separate GST registration for multiple offices (different states)?

A: Yes, if “additional place of business” (office in another state).

Example: Mumbai office (main), Delhi office → Need 2 GSTINs (Maharashtra + Delhi).

“Office” = Physical premises with employees (not just remote workers in other states).

Cost: ₹0 registration, but separate GSTR-1/3B filing (2x compliance work).

Q15: What is place of supply for B2B advertising services (India client)?

A: Place of supply = Client’s location (where client is registered/has address).

Tax:

If client same state as you (e.g., both Maharashtra): CGST 9% + SGST 9%
If client different state (e.g., you Maharashtra, client Delhi): IGST 18%

Same 18% total, but tax type differs (IGST vs. CGST+SGST—impacts filing, but not cost).

Q16: Can I use Composition Scheme as advertising agency?

A: No. Composition Scheme not allowed for service providers (except restaurants).

Advertising/marketing = Service → Must use regular GST scheme (18% rate, file GSTR-1/3B monthly).

Q17: What is the GST on retainer fees?

A: 18% (on full retainer amount).

Example: Monthly retainer ₹2L → GST ₹36K → Total ₹2.36L.

No exemption, no reduced rate (retainer = professional service fee = 18%).

Q18: Can I claim ITC on office rent?

A: Yes (if commercial property, GST invoice from landlord).

Example: Office rent ₹1L/month + ₹18K GST → ITC ₹18K allowed.

If residential property converted to office: Landlord may not charge GST (no ITC for you—but rent is expense, claim in Income Tax).

Q19: What is reverse charge on legal services?

A: If you hire advocate (individual/firm, not company) for legal services → RCM @18% (you pay GST, not advocate).

Example: Lawyer fee ₹50K (advocate doesn’t charge GST) → You pay ₹9K RCM (18% of ₹50K), claim ₹9K ITC.

If lawyer is company (Pvt Ltd): Normal GST (company charges 18% GST, you pay, claim ITC—no RCM).

Q20: How to file LUT for export of services?

A: LUT (Letter of Undertaking) = Undertaking to export without paying IGST (instead of paying IGST, claiming refund).

Process:

Login GST portal
Services → User Services → Furnish LUT
Fill details (GSTIN, FY, declaration)
Submit (no documents needed—auto-approved)
Valid for FY (renew annually)

Once LUT filed: Invoice foreign clients with 0% GST (mention “Export under LUT” on invoice).

Q21: What is the penalty for late GST filing?

Return	Late Fee	Interest
GSTR-1	₹200/day (₹100 CGST + ₹100 SGST), max ₹5K	No interest
GSTR-3B	₹50/day if nil; ₹200/day if tax payable	18% p.a. on tax amount

Example: GSTR-3B due 20th, filed 25th (5 days late), tax ₹50K.

Late fee: ₹1,000; Interest: ₹123 (₹50K × 18% ÷ 365 × 5) → Total ₹1,123 penalty.

Q22: Can I claim ITC on team outing expenses?

A: No (Section 17(5)—employee welfare = ITC blocked).

Example: Team outing ₹1L + ₹18K GST → Pay ₹1.18L, can’t claim ₹18K ITC (reverse if wrongly claimed).

Q23: What if I over-claim ITC (more than GSTR-2B)?

A: Dept will issue notice: Reverse excess ITC + interest + penalty.

Example: GSTR-2B: ₹5L ITC; You claimed: ₹6L (₹1L excess).

Demand: Reverse ₹1L + interest ₹9K (6 months @18% p.a.) + penalty ₹1L (if willful) = ₹2.09L.

From April 2025: System auto-validates (won’t allow claiming >GSTR-2B).

Q24: How to handle GST on barter deals (influencer gets products)?

A: Both parties issue GST invoices:

Influencer → Client: Service invoice (promotion) ₹50K + ₹9K GST = ₹59K

Client → Influencer: Product invoice (goods) ₹50K + GST (12-18% depending on product)

Payment: Adjust (₹59K vs. ₹56K if product GST 12% → Influencer pays ₹3K net OR client pays ₹3K net, depending).

Practical: Most barter deals skip GST invoices (risky—if caught, both penalized).

Q25: What documentation is needed for pure agent treatment?

A: 4 documents:

Client agreement (clause: “Agency authorized to spend on client’s behalf for ads/influencers; client reimburses actual cost”)
Third-party invoices (Facebook/Google/Influencer invoice in client’s name OR clear agency arrangement)
Your invoice to client (separate line items: Agency fee vs. Reimbursements—clearly marked)
Payment proof (bank transfer showing you paid third party on client’s behalf, client reimbursed you)

Without these: Dept may reject pure agent claim → Demand GST on full amount (fee + reimbursements).

Q26: Can I claim refund of accumulated ITC?

A: Yes, if:

Exports (0% GST supplies) → ITC accumulates (no output tax to offset) → Claim refund
Inverted duty structure (inputs taxed higher than output—rare for agencies)

Process: File GST RFD-01 (refund application) on GST portal → Dept verifies → Refund issued (60-90 days).

For agencies: Usually only export agencies claim refund (domestic agencies use ITC against output tax—no accumulation).

Q27: What is e-invoicing and when is it mandatory?

A: E-invoicing = Uploading invoice to govt portal (IRP—Invoice Registration Portal), getting IRN (Invoice Reference Number) + QR code.

Mandatory if: Annual turnover >₹5 crores (in ANY FY).

For agencies: If ₹5Cr+ revenue → E-invoice mandatory from next FY.

Process: Generate invoice in software → Upload to IRP → Get IRN → Send to client (invoice must have IRN + QR).

Q28: How to track monthly compliance (simple checklist)?

A: By 5th: Download invoices, check vendor compliance (GSTR-3B filing status)

By 10th: File GSTR-1 (all client invoices, correct SAC codes)

By 18th: Download GSTR-2B, reconcile (match vendor invoices), calculate ITC (only matched invoices)

By 20th: File GSTR-3B (output tax, ITC, RCM if any), pay GST

Monthly: 2-3 hours (if organized—accounting software, vendor tracker).

Q29: What are the biggest GST risks for agencies?

A: Top 5 risks:

Ad spend GST (charging GST on reimbursements—over-collection → client disputes OR dept demands refund)
Blocked ITC (client entertainment, gifts—wrongly claimed → reversal + penalty)
Export errors (claiming 0% GST for India market service → IGST 18% demand)
Freelancer non-compliance (vendors stop filing → your ITC disallowed)
RCM missed (Google Ads, imported software—no RCM paid → demand + interest)

Mitigation: Pure agent documentation, ITC reversal discipline, export due diligence, vendor tracker, RCM calendar.

Contact AdvoFin Consulting to ensure your agency is GST-compliant, ITC-optimized, export-ready, and notice-free—so you can focus on creating great work, not managing tax notices.

Disclaimer: This blog is for educational purposes only and does not constitute legal or tax advice. GST laws for advertising and agency businesses are complex and subject to frequent notifications, circulars, and case law interpretations. Pure agent treatment, export of services classification, place of supply determination, and intermediary status depend on specific contractual terms, service delivery models, and client arrangements. Every agency’s situation is unique—billing models, client mix (India vs. foreign), vendor ecosystem, and expense patterns vary significantly. Please consult a qualified GST practitioner, Chartered Accountant, or Tax Advisor specializing in advertising/marketing industry for personalized guidance on your specific business operations and compliance requirements. AdvoFin Consulting is not liable for actions taken based solely on this content.