Sponsorship Services provided by Body Corporates under Forward Charge Mechanism

At the 55th GST Council Meeting which was held on 21st December 2024 in Jaisalmer, Rajasthan chaired by the Union Finance Minister, it is decided to bring supply of the sponsorship services provided by the body corporates under Forward Charge Mechanism.

Sponsorship services comprise a contractual agreement in which one party (the sponsor) provides financial or other kinds of support to another (the sponsored) in exchange for different promotional benefits. This support could come in the form of money, goods, or services, and the sponsored party, who is usually an event organiser or individual, reciprocates by advertising the sponsor’s products or services.

Sponsorship services are subject to to GST under the reverse charge mechanism. This means that the recipient of the sponsorship service (the sponsored entity) must pay GST rather than the sponsor. The rate GST on sponsorship services for events in India may vary depending on the specific situation. GST rates were normally set at 12% or 18%, depending on the type of event and services delivered.

Other Changes related to Services

The Council recommended to exempt GST on the contributions made by general insurance companies from the third-party motor vehicle premiums collected by them to the Motor Vehicle Accident Fund, constituted under section 164B of the Motor Vehicles Act, 1988. This fund is constituted for providing compensation/ cashless treatment to the victims of road accidents including hit and run cases.

The Council also suggested to omit the definition of declared tariff and suitably amend the definition of specified premises (from the services rate and exemption notifications) to link it with actual value of supply of any unit of accommodation provided by the hotel and to make the rate of GST applicable on restaurant services in such hotels, for a given financial year, dependent upon the ‘value of supply’ of units of accommodation made in the preceding financial year, i.e. 18% with ITC if the ‘value of supply’ exceeded Rs. 7,500 for any unit of accommodation in the preceding financial year, and 5% without ITC otherwise. Furthermore, if the hotel so chooses, it will be able to pay tax on restaurant service in hotels at the rate of 18% with ITC by submitting a declaration to that effect on or before the start of the financial year or upon registration. To avoid transition difficulties, the adjustments listed above will take effect on April 1, 2025.