The Goods and Services Tax (GST) Council's decision on Saturday to tweak a rule on corporate sponsorships is set to make these deals more tax efficient and the recipient of funds better off, officials and experts said.
The Council's decision to shift the onus of remitting tax on sponsorship deals from the donor—that is, the entity that receives the benefits of a sponsorship deal in terms of brand promotion and access to target audience etc—to the entity that offers it for a price, for example, a sports event organizer, is set to enable the latter to lower its overall tax liability, they said.
The current regime of making the recipient entity liable to charge the tax on the transaction and pay the government is an exception to the general indirect tax rule of suppliers of goods or service collecting the same and remitting to the government. This exception is called reverse charge.
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