Digital marketing agencies have a tax profile that sits across several rules at once: they supply taxable services to Indian and foreign clients, often buy ad space and software from foreign platforms, pay freelancers and influencers, and have TDS deducted by their own clients. A wrong call on any one of these (the GST value of ad spend, reverse charge on a foreign tool, or the TDS section) shows up later as a notice.
This guide covers GST and income tax for digital marketing agencies in India for AY 2026-27 (FY 2025-26), with notes on what changes under the Income-tax Act, 2025 from Tax Year 2026-27.
Looking for expert help with GST and ITR filing for digital marketing agencies? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Quick Reference: Tax Profile of a Digital Marketing Agency
| Aspect | Detail |
|---|---|
| GST registration threshold | Rs 20 lakh aggregate turnover (Rs 10 lakh in Manipur, Mizoram, Nagaland, Tripura) |
| GST rate | 18% |
| Main SAC code | 998361 (advertising services) |
| Exports to foreign clients | Zero-rated under LUT (Form GST RFD-11) |
| Foreign tools and ad platforms billed from abroad | IGST under reverse charge if you are registered |
| TDS on client payments to you | Section 194C (1% or 2%) under CBDT Circular 715 |
| Business or profession | Business (Madras HC, Vajra Global Consulting Service LLP) |
| Tax audit | Turnover above Rs 1 crore, or Rs 10 crore if cash receipts and payments each within 5% |
| Presumptive taxation | Section 44AD (not 44ADA) |
Business Structure
| Structure | Tax Rate (AY 2026-27) | ITR Form | Notes |
|---|---|---|---|
| Sole proprietorship | Slab rates (new or old regime) | ITR-3 or ITR-4 | Common for small agencies and freelancers |
| Partnership firm | 30% + surcharge (12% if income exceeds Rs 1 crore) + 4% cess | ITR-5 | Partners' remuneration and interest within Section 40(b) limits are taxed in partners' hands; partners file ITR-3 |
| LLP | 30% + surcharge + 4% cess | ITR-5 | LLP accounts audit needed if turnover exceeds Rs 40 lakh or contribution exceeds Rs 25 lakh; not eligible for 44AD |
| Private limited company | 22% + 10% surcharge + 4% cess under Section 115BAA (25.17% effective) | ITR-6 | Statutory audit under the Companies Act, plus ROC filings |
GST Registration
Threshold
A digital marketing agency supplies services, so GST registration is required once aggregate turnover exceeds Rs 20 lakh in a financial year (Rs 10 lakh in Manipur, Mizoram, Nagaland and Tripura). Aggregate turnover is PAN-wide and includes export and exempt supplies.
What Does and Does Not Force Registration Below the Limit
| Situation | Registration Compulsory Below the Limit? |
|---|---|
| Clients in other states | No. Inter-state supply of services is exempt from compulsory registration up to the threshold |
| Foreign clients (export of services) | No, for the same reason. Many agencies still register voluntarily to file an LUT and claim ITC |
| Liable to pay tax under reverse charge | Yes, under Section 24 of the CGST Act |
See GST registration turnover limits.
GST Rate and SAC Codes
Digital marketing services are taxed at 18%.
| Service | SAC | GST |
|---|---|---|
| Advertising and campaign services (paid ads management, social media campaigns, creative for ads) | 998361 | 18% |
| Sale of internet advertising space or time (when you sell ad space, not a service) | 998365 | 18% |
| SEO, content and social media management | Usually 998361 as advertising and promotion services; check what your contract actually supplies | 18% |
| Website or app design and development | IT design and development headings (99831x) | 18% |
| Market research and surveys | 998371 | 18% |
Pick the SAC code from what the invoice supplies, not from how the agency describes itself. The rate is the same, but the code must match in e-invoices, GSTR-1 and HSN summaries.
Place of Supply: Domestic and Foreign Clients
| Client | Place of Supply | Tax |
|---|---|---|
| Registered client in your state | Client's location | CGST 9% + SGST 9% |
| Registered client in another state | Client's location | IGST 18% |
| Foreign client, conditions of export met | Outside India | Zero-rated (LUT, no IGST) |
For B2B services the place of supply is the recipient's location (Section 12(2) of the IGST Act). For an unregistered domestic client, it is the client's address on record, or your location if there is none.
Export of Services and LUT
A supply to a foreign client is an export of services only if all conditions in Section 2(6) of the IGST Act are met: you are in India, the client is outside India, the place of supply is outside India, you receive payment in convertible foreign exchange (or in Indian rupees where RBI permits), and you and the client are not merely establishments of the same person.
- File a Letter of Undertaking in Form GST RFD-11 for each financial year before making zero-rated supplies without paying IGST.
- Keep the invoice, contract or statement of work, and the FIRC or bank realisation advice for each receipt.
- Report exports in GSTR-1 and claim refund of accumulated ITC if needed.
See GST on export of services.
Ad Spend: Part of Your Supply, or Pure Agent?
Most agencies spend money on Google, Meta or LinkedIn ads for clients. How that spend is treated decides your GST value.
| How ads are bought | GST treatment |
|---|---|
| Client's own ad account, client pays the platform directly | Only your management fee is your supply |
| Agency buys ads in its own name and bills the client a single amount | The full amount, including ad spend, is your taxable value at 18%. You claim ITC on the platform's GST or on the IGST you pay under reverse charge |
| Agency pays on the client's behalf as a pure agent | Ad spend can be excluded from your value only if all conditions of Rule 33 of the CGST Rules are met |
Pure agent conditions under Rule 33: a contractual agreement that you act as the client's pure agent to incur the expense; you do not hold title to or use the service for yourself; the client receives it; the expense is shown separately on the invoice; and you recover only the actual amount. An agency that buys ad inventory in its own account and manages the campaign usually does not meet these conditions.
Input Tax Credit and Reverse Charge
ITC on Business Expenses
| Expense | ITC Available? |
|---|---|
| Software and SaaS (Indian supplier with GSTIN) | Yes |
| Foreign SaaS and ad platforms billed from abroad | Yes, after you pay IGST under reverse charge |
| Ad platform invoices from Indian entities (with GSTIN and GST charged) | Yes |
| Office or co-working rent | Yes |
| Laptops, cameras, microphones | Yes, as capital goods |
| Professional fees (CA, legal) | Yes |
| Food, beverages, outdoor catering, club memberships, most motor vehicles | No, blocked under Section 17(5) |
All ITC is subject to the invoice appearing in GSTR-2B and the Section 16 conditions, including paying the supplier within 180 days.
Foreign Tools and Ad Platforms Billed From Abroad
When a registered agency buys services from a supplier outside India (for example a foreign SaaS tool, or ads billed by a foreign platform entity with no Indian GST), it is an import of services. You pay 18% IGST under reverse charge.
| Step | Detail |
|---|---|
| Pay | In cash through the electronic cash ledger; ITC cannot be used to pay RCM |
| Report liability | GSTR-3B Table 3.1(d) |
| Claim ITC | GSTR-3B Table 4(A)(2) (import of services), in the same return |
If the invoice is raised by an Indian entity of the platform with a GSTIN and GST charged, it is a normal domestic supply: no reverse charge, just claim ITC. See GST on Google and Meta ads and GST on import of services.
Unregistered agencies: from 1 October 2023, a foreign supplier of online services to any unregistered person in India must itself charge and pay IGST, so an unregistered agency does not pay reverse charge on those tools.
TDS on Payments the Agency Receives
CBDT Circular 715 (1995) clarifies that payments by an advertiser to an advertising agency are covered by Section 194C, not 194J. Clients should deduct:
| Payee | Rate under 194C |
|---|---|
| Individual or HUF agency | 1% |
| Firm, LLP or company | 2% |
Some clients still deduct under 194J at 10%. TDS credit is given for what the client actually deducts and reports, whichever section it uses, so check Form 26AS every quarter and raise corrections with the client early. Give your PAN to every client; without it, TDS is deducted at 20% under Section 206AA.
TDS on Payments the Agency Makes (FY 2025-26)
| Payment | Section | Rate | Threshold |
|---|---|---|---|
| Sub-contracted campaign or production work | 194C | 1% (individual/HUF) or 2% (others) | Rs 30,000 single payment or Rs 1 lakh in the year |
| Influencer or creator fees for professional services | 194J | 10% | Rs 50,000 in the year |
| Technical services | 194J | 2% | Rs 50,000 in the year |
| Free products, trips or other benefits to influencers | 194R | 10% of value | Rs 20,000 in the year |
| Professional fees (CA, lawyer) | 194J | 10% | Rs 50,000 in the year |
| Office rent | 194-I | 10% | Rs 50,000 per month or part of a month |
Individual and HUF agencies must deduct under 194C, 194-I and 194J only if their turnover exceeded Rs 1 crore in the previous year. Whether an influencer payment falls under 194J or 194C depends on the contract; the 194J definition of professional services includes advertising. For benefits given to influencers, see the Section 194R guide.
From Tax Year 2026-27 these TDS provisions move to Section 393 of the Income-tax Act, 2025.
Payments to Foreign Platforms: Section 195 and Form 15CA
- Equalisation levy: the 6% equalisation levy on online advertising payments to non-residents was abolished from 1 April 2025.
- Section 195: TDS applies only if the payment is taxable in India in the non-resident's hands under the Act and the tax treaty. Tribunals have generally treated payments for online ad space as business income of the platform, not royalty, so TDS usually does not arise where the platform has no permanent establishment in India. Take advice for large or unusual contracts.
- Form 15CA/15CB: foreign remittances need Form 15CA, and in some cases a CA certificate in Form 15CB, under Rule 37BB unless the payment is in the exempt list. Failing to furnish or furnishing inaccurate information can attract a Rs 1 lakh penalty under Section 271-I. See Form 15CA and 15CB.
Income Tax: Business, Not Profession
In Vajra Global Consulting Service LLP v. ADIT (W.P. No. 18560 of 2023), the Madras High Court (2025) held that digital marketing is a business, not a profession, and that doing the work on computers does not turn it into a profession. The case concerned FY 2020-21: the agency's turnover was within the enhanced Section 44AB(a) limit and its cash receipts and payments were each below 5%, so the court held no tax audit was required.
| Classification | Tax Audit Threshold (AY 2026-27) |
|---|---|
| Business (Section 44AB(a)) | Turnover above Rs 1 crore; Rs 10 crore if cash receipts and cash payments are each within 5% of the total |
| Profession (Section 44AB(b)) | Gross receipts above Rs 50 lakh; Rs 75 lakh if cash receipts are within 5% |
Most agencies are paid through banking channels, so the Rs 10 crore limit usually applies. The ruling is binding in Tamil Nadu and persuasive elsewhere.
Presumptive Taxation Under Section 44AD
| Aspect | Detail |
|---|---|
| Who can opt | Resident individual, HUF or partnership firm (not LLP or company) |
| Turnover limit | Rs 2 crore, or Rs 3 crore if cash receipts do not exceed 5% of total receipts |
| Deemed profit | 6% of receipts through banking or digital modes; 8% of the rest |
| Excluded | Commission or brokerage income and agency business |
| Advance tax | Single instalment by 15 March |
| Five-year rule | If you declare lower profit in any of the next five years, 44AD is barred for the following five years |
Section 44ADA does not apply, because digital marketing is not a profession listed in Section 44AA(1). An agency that earns mainly media commission rather than service fees also cannot use 44AD.
Trade-off: 44AD saves bookkeeping but ignores actual costs. Agencies with high salary, freelancer and tool costs often pay less tax by declaring actual profit in ITR-3. See our Section 44AD guide.
Foreign Clients and Foreign Tax Credit
Resident agencies are taxed on global income. If a foreign client withholds tax, you can claim foreign tax credit by filing Form 67 on or before the end of the assessment year, provided the return is filed within the time allowed. See the Form 67 guide.
ITR Form and Due Dates (AY 2026-27)
| Structure | ITR Form |
|---|---|
| Proprietor, regular books | ITR-3 |
| Proprietor, Section 44AD | ITR-4 |
| Partnership firm or LLP | ITR-5 |
| Company | ITR-6 |
| Event | Due Date |
|---|---|
| ITR-3/ITR-4 for non-audit cases | 31 August 2026 (passed) |
| Tax audit report (Form 3CA/3CB with 3CD) | 30 September 2026 |
| ITR for audit cases | 31 October 2026 |
| Belated return | 31 December 2026 |
GST Returns and Late Fees
| Return | Due Date |
|---|---|
| GSTR-1 (monthly) | 11th of the next month |
| GSTR-1 / IFF under QRMP (turnover up to Rs 5 crore) | 13th of the month after the quarter (IFF optional for the first two months) |
| GSTR-3B (monthly) | 20th of the next month |
| GSTR-3B under QRMP | 22nd or 24th of the month after the quarter, depending on your state |
| GSTR-9 annual return | 31 December after the financial year; optional if turnover is up to Rs 2 crore |
Late fee for GSTR-3B and GSTR-1: Rs 50 per day (Rs 25 CGST + Rs 25 SGST), or Rs 20 per day for nil returns, subject to caps. Interest on tax paid late is 18% per annum. See GST late fees and interest.
Common Mistakes
| Mistake | Consequence | Fix |
|---|---|---|
| Excluding ad spend from GST value without meeting Rule 33 | Short payment of GST, interest and penalty | Either meet all pure agent conditions or charge GST on the full amount |
| Missing RCM on foreign tools and ads | Tax, interest and penalty; ITC timing lost | Pay IGST in cash every month and claim it back |
| Exporting without an LUT | IGST payable on exports | File RFD-11 at the start of each financial year |
| Filing under 44ADA | Invalid claim; digital marketing is not a 44AA(1) profession | Use 44AD or regular books |
| Not reconciling client TDS with Form 26AS | Lost credit, higher tax payable | Reconcile every quarter |
| No TDS on influencer fees or benefits | 30% expense disallowance under 40(a)(ia), plus interest | Deduct under 194J, 194C or 194R |
Where Tax Garden Helps
Tax Garden helps digital marketing agencies with:
- GST registration, LUT filing and monthly or quarterly returns
- Deciding the GST treatment of client ad spend
- Reverse charge on foreign SaaS and ad platforms
- TDS on freelancers, influencers and rent, and reconciliation of client TDS with Form 26AS
- Choosing between Section 44AD and regular books, and filing ITR-3, ITR-4 or ITR-5
- Replying to GST and income tax notices
Looking for expert help with ITR filing for digital marketing agencies? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Sources: CGST Act, 2017 (Sections 9, 12, 16, 17(5), 22, 24, 47, 50) and CGST Rules (Rule 33); IGST Act, 2017 (Sections 2(6), 5(3), 12, 13, 16); Income-tax Act, 1961 (Sections 28, 40(a)(ia), 44AA, 44AB, 44AD, 44ADA, 194C, 194-I, 194J, 194R, 195, 206AA, 271-I) as amended by the Finance Act, 2025; CBDT Circular 715 dated 8 August 1995; Madras High Court, Vajra Global Consulting Service LLP (2025); Income-tax Act, 2025; cbic-gst.gov.in and incometax.gov.in. Check current rates, thresholds and due dates before acting. This article is general information, not professional advice.
Frequently Asked Questions
What is the GST rate on digital marketing services in India?
Digital marketing services such as SEO, social media management, paid ads management, content marketing and online campaign services are taxed at 18% GST. Charge CGST 9% plus SGST 9% when the client is in your state, and IGST 18% when the client is in another state.
What SAC code should a digital marketing agency use?
Advertising and campaign services generally fall under SAC 998361 (advertising services). SAC 998365 covers the sale of internet advertising space or time, which applies when you sell ad space rather than a service. Website and app development falls under the IT design and development headings (99831x). Use the code that matches what your invoice actually supplies.
When must a digital marketing agency register for GST?
When aggregate turnover exceeds Rs 20 lakh in a financial year (Rs 10 lakh in Manipur, Mizoram, Nagaland and Tripura). Inter-state supply of services and export of services do not force registration below this limit. Registration is compulsory regardless of turnover if you are liable to pay tax under reverse charge, for example on imported services used in your business.
How does an agency export services without paying IGST?
File a Letter of Undertaking (LUT) in Form GST RFD-11 on the GST portal for the financial year before making zero-rated exports. The supply must meet the export of services conditions in Section 2(6) of the IGST Act, including receipt of payment in convertible foreign exchange (or in Indian rupees where RBI permits).
Is ad spend on Google or Meta part of the agency's taxable value?
It depends on how the ads are bought. If the agency buys the ads in its own name and bills the client a single amount, the ad spend is part of the agency's taxable supply and GST applies to the full amount. It can be excluded only if the agency meets all the pure agent conditions in Rule 33 of the CGST Rules, including a contract making the client liable, the ads being bought on the client's behalf, and the cost shown separately on the invoice at actual.
Which TDS section applies when clients pay a digital marketing agency?
Payments by an advertiser to an advertising agency are covered by Section 194C (CBDT Circular 715 of 1995), at 1% for an individual or HUF payee and 2% for others. Some clients deduct under 194J at 10% instead. Check Form 26AS: credit is given for the TDS actually deducted and reported, whichever section is used.
What TDS applies when an agency pays influencers?
Cash fees to influencers and creators are generally covered by Section 194J at 10% where the payment is for professional services (the 194J definition of professional services includes advertising), with a threshold of Rs 50,000 a year from FY 2025-26, or by Section 194C where the arrangement is a contract for producing content. Free products or other benefits worth more than Rs 20,000 a year attract TDS under Section 194R at 10%.
Is digital marketing a business or a profession for income tax?
In Vajra Global Consulting Service LLP (2025), the Madras High Court held that digital marketing is a business, not a profession, and that using computers does not make it a profession. So the business tax audit limits under Section 44AB(a) apply (Rs 1 crore, or Rs 10 crore if cash receipts and payments are each within 5%), not the Rs 50 lakh professional limit.
Can a digital marketing agency use presumptive taxation?
A proprietor or partnership firm (not an LLP or company) can opt for Section 44AD if turnover is within Rs 2 crore, or Rs 3 crore where cash receipts do not exceed 5% of total receipts. Deemed profit is 6% of digital or banking receipts and 8% of the rest. Section 44ADA is not available because digital marketing is not a profession listed in Section 44AA(1).
What ITR form does a digital marketing agency file?
A proprietor files ITR-3 with regular books, or ITR-4 if opting for Section 44AD. A partnership firm or LLP files ITR-5, and a company files ITR-6.
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