Gst on royalty

This query is : Resolved

SAMIK (Querist)
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26 March 2018 A business Owner "A" provides a free online platform to content owner "B".. When end user "C" downloads the content he pays "A" an amount X + GST. "A" pays the GST to the Govt. Afterwards "A" pays 50% of X amount to "B" as a royalty. Will there be GST again on this ? If so, then will it not be a double taxation ?

(please note that content is NOT books)

Saket Agarwal

Saket Agarwal (Expert)
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28 March 2018 Hi. Yes there will be GST again on the amount being paid by A to B. This is not double taxation. Say the X in your example is Rs.100 and the GST on that is Rs.18. A will be paying Rs.50 as royalty and Rs.9 as GST to B. A will collect Rs.18 from C. A will pay Rs.9 to the government and Rs.9 to B. (Assuming there are no other input credits)

SAMIK

SAMIK (Querist)
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29 March 2018 Hi Mr Saket Agarwal. Thanks for the response. Could you please elaborate a little more ? "A" issues an invoice to "C" for 118 Rupees including GST. and pays Rs 18 to the Govt. But i am not clear about the second part of it where royalty is paid by A to B. Will it be a Rs 59 payment by A to B ? Then B will pay 9 to the Govt. So the Govt effectively gets a GST of Rs 27. Or is it like this. The Rs 9 is already a part of the Rs 18 paid to the Govt and hence Rs 50 should be paid by A to B.

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Saket Agarwal

Saket Agarwal (Expert)
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29 March 2018 Hi. A does not pay Rs18 to government. A will only pay Rs.9 to government. Below is the computation for A:
GST input credit = Rs.9 (paid to B when B raised an invoice for 50+9)
GST output = Rs.18 (collected from C when A raised invoice for 100+18)
GST to be paid to Government = Output - Input = 18 - 9 = Rs.9

You need to read on input credit mechanism under GST if you still have doubts.

SAMIK

SAMIK (Querist)
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30 March 2018 Thanks again Mr Agarwal. I understand input tax credit. But the issue is a little more complex here. normally the input happens before output. But in this case the output will happen before the input. For example, A will receive the money from C in January, but A will pay the royalty to B in April. So during the lead time, A has no option to pay the full 18 GST to the Govt. Later when A pays 59 to B, can he claim 9 as input credit ? (even though the input happens at a later date). Or is it a better idea to invoke the "reverse charge mechanism". (in most cases B will be not registered in GST because of the turnover threshold)

Saket Agarwal

Saket Agarwal (Expert)
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30 March 2018 It is just a matter of timing difference. If the input is coming after the output, the same will get adjusted in the month in which input has come.

Reverse charge can not be 'invoked' as per us. It applies when it has to apply. As of today the reverse charge on procurements for unregistered persons is not applicable till June 2018.

SAMIK

SAMIK (Querist)
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30 March 2018 Ok.. Thanks a lot.for your quick responses.