GST increase proposed at 18% from 12% for distribution or exhibition of films, recordings, or programmes.

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GST increase proposed at 18% from 12% for distribution or exhibition of films, recordings, or programmes.
Oct, 2021
By Vikash Dhanania

Namaskar DOST!

I hope you find this email in the best of your health.

The GST council meetings proposed increasing the GST rate to 18% for licensing services to broadcast and show original films, sound recordings, radio and television programs. And it had been increased w.e.f. 1st October 2021 vide Notification No. 06/2021-Central Tax (Rate) dated 30th September 2021.

This is not happening randomly, and there is a back story to it!

The story for this change is really interesting; let's understand the situation.

Whenever a film is made, the film's producer holds the intellectual property rights to that particular film. However, the producer alone is not capable of distributing the media all over the country and abroad, because of which other parties come into the picture.

The producer transfers the copyright to the distributor.

There are two ways using which the distribution of films by the distributor further along the chain is done:

●    In the first option, the distributor can further transfer the rights he/she has received from the producer to the exhibitor or subcontractor.

●    In the second option, the distributor can lease the rights to the exhibitor or subcontractor for a particular set period.

For these two options, two HSN codes are applicable:

●    HSN 997332: 

Licensing services for the right to use the intellectual property of films, sound recordings, radio and television programs

●    HSN 999614:  

Motion picture, videotape and television programme distribution services

The former HSN code invites a tax of 12%, whereas the latter invites 18% of GST.

Due to this difference in tax, many of the agreements between parties are made as licensing agreements instead of leasing the distribution rights. However, the nature of the agreement specifies terms that would ideally be defined in leasing agreements.

Putting an end to this "kind of a loophole."

The Department has expressed its view that agreements signed under the 12% GST category still have services whose nature resembles that of leasing services of rights. This situation was also leading to numerous litigations in different courts all over India.

In order to end the disputes before they emerge, the 45th GST Council meeting has decided to raise the amount of GST for the first HSN code to 18%

This means that both of the HSN codes will now attract the same amount of GST, w.e.f. 1st October 2021.

However, the agreements signed and invoice raised before this date would still invite only 12% of GST.

If you have doubts or questions related to this change or any other particular thing related to GST, feel free to contact us.

This is it for this email; let's meet in the next email with another exciting story/change in GST.

Thanks & Regards

DOST Vikash Dhanania