Budget 2024: What can the Media and Entertainment Business Expect from the Union Budget?

The Indian media and entertainment (M&E) sector is rapidly expanding as a result of the growing popularity of OTT platforms, the government's investment in digital infrastructure, and people's love of movies.

On the tax front, while the government has implemented various tax reforms over the years, there are still certain issues with the M&E business that must be addressed in the next Union Budget.

Some of the primary pain points are as follows

The M&E business is dealing with a few TDS-related challenges. According to tax legislation, taxpayers can only claim TDS credit if the matching income is reported on their tax return for that year. For a variety of reasons, there may be timing variations between the year in which tax is deducted by the deductor and the year in which the matching income is offered to tax. Given the high amount of transactions, taxpayers must reconcile the TDS with the associated income and the year in which it is taxed. The Income-tax Act may be changed to allow taxpayers to claim the TDS credit represented in Form 26AS for a certain year.

Another issue with TDS concerns advertising companies. Typically, an advertising agency operates as a liaison between marketers and media companies. While billing its clients, the advertising agency charges a lump sum payment that includes the advertisement fees (payable to the media) and their fees/commission. The advertisers then withhold tax from the gross billing amount (only a small fraction of which is income for the advertising agency). In other words, advertising companies pay TDS on advertisement charges, which go to the media. As a result, such agencies' actual tax liability is substantially lower than the TDS they incur, resulting in a massive blockage of revenues. As a result, advertising agencies are urging the government to cut the TDS rate on monies paid by advertisers to them for advertisement placement in order to alleviate their cash flow issues.

Moving forward, numerous M&E industry firms have used foreign satellites to transmit their TV channels, as well as data centers to host and download information.In this regard, the tax authorities have held that payment for the aforementioned services is in the form of a royalty/fee for technical services and hence liable to withholding tax. However, given that these are standard services with no human participation, the government should clarify that such payments are not royalty or fees for technical services and so are not subject to withholding tax in India.

Losses of the amalgamating company may be transferred to the merged business only for a certain class of companies, which excludes enterprises in the M&E industry. One of the long-standing demands of the M&E sector is that the regulations be altered so that enterprises in the M&E sector can also benefit from loss carry forward. 

On the GST front, no new announcements are expected in the Budget, as the GST Council meetings handle the issue. However, the forthcoming Budget may consider adopting adjustments to the GST statute based on the ideas published at the recently finished 53rd GST Council meeting. These revisions, which aim to address industry concerns, may include provisions for an amnesty plan for the forgiveness of interest and penalties, a reduction in the pre-deposit for submitting appeals, and the ability to collect Input Tax Credit for preceding years up to November 2021. With these changes, the sector can look forward to fewer continuing lawsuits.

The taxation of online games is a key expectation from the government that was not addressed at the previous Council meeting. The industry advocates a 28% GST on gross gaming revenue, as opposed to the existing system, which is 28% on the total amount deposited by players.

Overall, the administration has made it plain that it intends to steer India toward becoming 'Viksit Bharat' by 2047. Certain beneficial policy and tax decisions for the M&E sector will undoubtedly assist fuel growth and bring India closer to its objective of achieving 'Viksit Bharat'.