RCM on Sponsorship

Difference between Advertisement and Sponsorship?

Advertisement is a paid promotion where the service provider is fully involved in promoting the brand, while Sponsorship is a supportive strategy that offers brand visibility through association.

Examples of Sponsorship Services-

1. At an event, the service provider can display the service recipient’s logo.

2.The service provider can associate the service recipient’s name with prizes or trophies at an event.

What is a body Corporate?

A body corporate is a legal entity that has a separate legal identity from its members, meaning it can own property, sue, and be sued in its name. Examples include companies, LLPs, cooperative societies, and statutory bodies.

In sponsorship services, there are two entities involved: the service receiver and the service provider. The applicability of GST (Goods and Services Tax) depends on whether the Forward Charge Mechanism (FCM) or the Reverse Charge Mechanism (RCM) applies.

1. Forward Charge Mechanism (FCM)

Under FCM, the service provider is responsible for collecting GST along with the sponsorship amount from the service receiver and remitting it to the government.

2. Reverse Charge Mechanism (RCM)

Under RCM, the service receiver is liable to pay GST directly to the government.

Rate of tax-18%

Amendment to Serial Number 4 of Notification No. 13/2017

(A)against serial number 4, in column (3), i.e. after the words “Any person”, the words “other than a body corporate” shall be inserted.

Explanation of the Changes:

Original Provision:

Earlier, RCM is applicable only if the service receiver is a body corporate or a partnership firm, irrespective of the type of service provider.

Revised Provision:

If a body corporate or partnership firm receives sponsorship services from another body corporate, GST is to be paid under the FCM and not RCM.

In all other cases, where the service receiver is a body corporate or partnership firm and the service provider is not a body corporate, RCM will be applicable.

When the Registrar of Companies (ROC) comes knocking under Section 206 or 207 to inspect your records, missing or incomplete minutes can lead to:

Implications of the Amendment

For Body Corporates (Service Provider):

New Tax Responsibility:

Body corporates supplying sponsorship services must now register under GST (if not already registered) and comply with FCM requirements.

Invoice Management:

Body corporates will need to issue GST-compliant invoices and remit tax directly to the government.

For Partnership Firms and Body Corporates (Service Receiver):

Reduced Compliance Burden:

Recipients no longer need to calculate and pay GST under RCM for sponsorship services received from body corporates.

For Non-Body Corporate Suppliers:

Remains stable:

Sponsorship services provided by non-body corporates will continue to be taxed under RCM, where the recipient bears the tax liability

Example-

• Service Provider: ABC Sports Association (a Sec 8 Co.)
• Service Recipient: XYZ Ltd. (a body corporate)
• Nature of Service: Sponsorship
• RCM Applicability: No, since the service provider is a body corporate
• GST Rate: 18% (CGST 9% + SGST 9% or IGST 18%)

Conclusion-

GST on sponsorship services is payable under FCM if both parties are body corporates; otherwise, RCM applies when the provider is not a body corporate