Understanding GST on Sponsorship Services

Goods and Services Tax (GST) has revolutionized the tax landscape in India, encompassing a wide array of economic transactions, including sponsorship services. The implications of GST on sponsorship services have a profound impact on both the sponsors and recipients, requiring a comprehensive understanding of the tax regime.

Meaning of Sponsorship Services

Sponsorship services involve a contractual relationship where one party (the sponsor) provides financial or other forms of support to another party (the sponsored) in exchange for various promotional benefits. This support could be in the form of funds, goods, or services, and the sponsored party, often an event organizer or individual, reciprocates by promoting the sponsor's products or services.

GST Registration for sponsorship Services

GST (Goods and Services Tax) registration is a mandatory requirement for businesses providing sponsorship services in India if they meet certain criteria. Here's a breakdown of the GST registration process for sponsorship services:

Threshold Limit:  GST registration is required if your aggregate turnover exceeds the prescribed threshold limit. For most businesses, this threshold limit was Rs 40 lakhs.

 However, specific businesses, such as those engaged in the supply of goods or services across state lines, had a lower threshold limit of Rs 20 lakhs. It's essential to verify the current threshold limits as they may change over time.

Voluntary Registration: Even if your turnover is below the threshold limit, you can opt for voluntary GST registration. This can be beneficial if you wish to claim an Input Tax Credit (ITC) for GST paid on your business expenses.

Mandatory Registration: In some cases, GST registration may be mandatory irrespective of the turnover. This includes businesses involved in the supply of taxable goods or services, inter-state supply of goods or services, or e-commerce operators, among others.

What is the GST Rate on Sponsorship Services Event?

Sponsorship services are typically subject to GST under the reverse charge mechanism. This means that the recipient of the sponsorship service (the sponsored entity) is liable to pay GST, rather than the sponsor. The GST rate on sponsorship services for events in India could vary based on the specific circumstances. GST rates were typically set at either 12% or 18%, depending on the nature of the event and the services provided. Here's a breakdown of how the GST rate might apply:

GST Rate of 18%: Sponsorship services related to sports events and activities were typically subject to an 18% GST rate. This included sponsorships for sporting events, tournaments, and other sports-related activities.
GST Rate of 12%: In some cases, sponsorship services for cultural or artistic events were subject to a lower GST rate of 12%. This could include sponsorships for music concerts, art exhibitions, or cultural festivals.

GST Return filing for sponsorship Services

GST return filing for sponsorship services involves the following key steps:
Step 1 : Determine the appropriate GST return type based on your business and transactions (e.g., GSTR-1, GSTR-3B).
Step 2 : Maintain accurate records of all sponsorship-related transactions, including invoices and bills.
Step 3 : Review and reconcile your data to ensure accuracy.
Step 4 : Log in to the GST portal, select the relevant return form, and fill in transaction details.
Step 5 : Submit the return online, pay any GST liability, and file on time to avoid penalties.
Step 6 : Sponsored entities should reconcile Input Tax Credit (ITC) with GSTR-2A and GSTR-2B.
Step 7 : Consider annual return (GSTR-9) for summarizing annual GST activities.
Step 8 : Timely and accurate GST return filing is essential to maintain compliance and avoid legal issues.

GST Credit ITC For sponsorship services Provider

Input tax credit (ITC) for the GST paid at a rate of 18% under the Reverse Charge Mechanism (RCM) on sponsorship services can be claimed by Section 16 of the CGST Act, 2017 if these services are acquired for business purposes or taxable supplies.

However, it's crucial to note that when sponsorship services are procured from an unregistered supplier, the recipient must issue a self-invoice as mandated by Section 31(3)(f) of the CGST Act, 2017 upon receiving the sponsorship services. ITC can then be availed based on this self-invoice, provided that the necessary tax payment is made.

Conditions to Claim GST ITC Credit

To claim ITC on sponsorship expenses, sponsors must meet certain conditions:
1. The expenses should be incurred in the course of business.
2. Proper documentation and invoices must be maintained.
3. The sponsor should have a tax invoice or debit note.
4. The supplier of goods or services must have correctly deposited the GST with the government.

Additionally, to claim Input Tax Credit (ITC) for GST paid under the Reverse Charge Mechanism (RCM)rever on sponsorship services, it's imperative to comply with the requirement that the recipient issues a self-invoice as per the provisions outlined in Section 31(3)(f) of the CGST Act, 2017. This obligation applies when sponsorship services are procured from an unregistered supplier.

When does GST become Payable for Sponsorship Services?

GST becomes payable for sponsorship services at the time of supply or when the invoice is issued, whichever is earlier. The recipient of the service (the sponsored entity) is responsible for calculating and remitting the applicable GST.

What is the SAC Code for Sponsorship Services?

The Service Accounting Code (SAC) for sponsorship services under the Goods and Services Tax (GST) system in India is 998397. This code is used for the classification and taxation of sponsorship services and is utilized for proper reporting and compliance with GST regulations. Businesses providing sponsorship services should use this SAC code when filing their GST returns and invoices.