12% Rate of GST on Royalty Paid to Government in India


October 15, 2019

GST on Royalty

There is confusion between authors and publishers because of the GST (Goods and Services Tax). The questions which arise in their mind are how much GST to be paid on book royalties and who is responsible to pay it. A writ petition was filed by the Meerut Publishers’ Association to get the precision on the matter. On September 11, 2018, the petition began in Delhi High Court against the centre because of the confusion created by India’s biggest tax reform.

The subject and fiction authors are supervising the court case with closeness. The matter of discussion has become very serious and the fiction writer’s – Ravi Subramanian and Ashwin Sanghi are discussing this topic with the publishers.

The matter of discussion is “Who is responsible to serve 12% GST on royalty?”

“The problem lies in the fact that 12% GST is applicable on author royalties. Publishers must pay GST on the reverse charge mechanism basis, but the problem is that the publisher can’t claim input credit given that books are not covered under GST” said Ashwin Sanghi on the matter.

Recently, royalty was on the exempted list of tax and it was also not included in VAT because as an author transfers their own work to the publisher, the right to publish it becomes absolute.

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“The reverse charge applicable on the copyrights of authors under GST requires the publishers to pay the tax, and if these are passed on to the authors, it would amount to an effective reduction in the royalties payable” said MS Mani, a partner at Deloitte India.

Another matter of concern is that only famous authors are usually paid royalties by publishers but new authors do not have any such remark on the publishers and do not usually get paid royalties.

“While the well-known authors would be able to convince the publishers to absorb the GST on royalty, the lesser known and new writers would be squeezed. The larger problem, however, is that the publishers operate on about 5% margins and that they are facing the squeeze” said Ravi Subramanian, the established fiction author.

The Industry experts who are concerned on the topic says that the books are exempted from GST but there are many other costs involved which are now causing a toll on the industry.

“While books are largely out of the GST gamut, various input supplies are taxable. The royalties paid to authors or writers are taxed at 12% and that too under the reverse charge mechanism. The cost of books may go up due to the cascading tax effect on publishers” said Abhishek A Rastogi, a partner at Khaitan & Co regarding the matter.

The well known Author- Ashwin Sanghi said in a very gentle way that the opposite of other industries can be done and create problems for the involvement of books under GST.

As per tax experts, there will be no refund policy if the supply of books is exempted under GST. So due to this reason, the publishers cannot repay the royalties against tax liabilities.

“The matter for a refund of inverted duty structure in case of exempted supplies for publishers is pending before the Delhi High Court. The legislature and judiciary should take a pragmatic view on this subject to keep costs under control for these essential supplies” said Abhishek A Rastogi.

The rules under Goods and Services Tax (GST) will also affect the freelancers and authors of the school and college book due to which the cost of books of school and college might be increased.


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