The Principal, Pure Agent and Intermediary Test for Advertising Agencies, Media Buyers and Ad-Space Resellers
By CA Surekha Ahuja
The margin tells you what you earned. GST first asks what you supplied — and in what capacity.
An advertising agency purchases media space for ₹8 crore and bills its client ₹10 crore.
Its commercial margin is ₹2 crore.
The immediate question is whether GST should apply to ₹10 crore or ₹2 crore.
The answer does not lie in the margin, the accounting treatment or the description used on the invoice. It lies in the legal character of the transaction.
The agency may be supplying the service on its own account, acting for another person, qualifying as a pure agent, or merely arranging or facilitating another person's supply.
Each possibility can produce a different GST analysis.
The ₹10 Crore versus ₹2 Crore Question
Consider the same commercial arrangement under different legal structures:
| Structure | ₹8 crore media cost | ₹2 crore earning | GST analysis |
|---|---|---|---|
| Principal | Agency procures media | Margin | ₹10 crore may be relevant consideration |
| Qualifying pure agent | Client expenditure satisfying Rule 33 | Agency fee | Eligible ₹8 crore may be excluded |
| Intermediary | Supply between client and media owner | Facilitation consideration | Agency's own facilitation supply is analysed |
The lesson is fundamental: ₹2 crore margin does not automatically mean ₹2 crore taxable value.
But equally: ₹10 crore billing does not automatically mean ₹10 crore taxable value.
The ultimate taxable value follows from the applicable valuation provisions and the actual legal character of the transaction.
The First Question Is Not Valuation. It Is Characterisation.
GST is imposed on a supply, not on accounting profit.
Accordingly, before asking how much GST is payable, one must first determine what the agency has supplied and in what capacity.
| Capacity | Basic character |
|---|---|
| Principal | Supplies advertising or media services on its own account |
| Agent | Acts for another person |
| Pure agent | Pays specified third-party expenditure on the client's behalf, subject to Rule 33 |
| Intermediary | Arranges or facilitates another person's supply |
These concepts are related but not interchangeable.
In particular, principal versus intermediary primarily concerns the character of the supply and place-of-supply consequences, whereas pure-agent treatment is essentially a valuation exclusion under Rule 33.
The Statutory Turning Point: “On His Own Account”
Section 2(13) of the IGST Act defines an intermediary as a broker, agent or other person who arranges or facilitates a supply between two or more persons.
However, the definition excludes a person who supplies goods or services on his own account.
That exclusion is critical for advertising businesses.
The mere use of a third-party media owner does not make an advertising agency an intermediary.
The real issue is whether the agency is: supplying the advertising service itself, using the media owner as its vendor
or merely arranging a direct supply between the client and the media owner.
CBIC Circular 230/2024: The Advertising Industry Turning Point
CBIC Circular No. 230/24/2024-GST dated 10 September 2024 provides particularly important guidance for advertising agencies dealing with foreign clients.
CBIC considered an advertising agency providing a comprehensive service involving media planning, procurement of media space and campaign execution. The agency procured media space from media owners and invoiced the foreign client.
CBIC clarified that where the advertising agency supplies the advertising service on a principal-to-principal basis, it is not an intermediary, even though third-party media owners are involved.
The distinction can be seen clearly:
| Principal model | Intermediary model |
|---|---|
| Client contracts with agency | Client contracts with media owner |
| Agency contracts with media owner | Agency merely facilitates |
| Media owner invoices agency | Media owner invoices client |
| Agency invoices client | Agency earns facilitation consideration |
| Agency supplies on own account | Agency arranges another person's supply |
Third-party involvement is not the test. Own-account supply is.
When Can ₹10 Crore Be the Relevant Value?
Suppose the agency:
- contracts with the client;
- undertakes the advertising obligation;
- procures media space from vendors;
- remains responsible for campaign delivery; and
- operates on a principal-to-principal basis.
The agency is then making its own outward supply.
Section 15 of the CGST Act generally determines value by reference to the transaction value where the statutory conditions are satisfied.
Accordingly, the ₹10 crore consideration may be relevant for valuation.
The fact that the agency retains only ₹2 crore as its commercial margin does not, by itself, reduce the value of its outward supply.
The Pure Agent Question: Can the ₹8 Crore Be Excluded?
This is a separate valuation issue.
Rule 33 permits specified expenditure incurred as a pure agent to be excluded from the value of supply, but only where its statutory conditions are satisfied.
Broadly, the agency must:
- be contractually authorised to act as pure agent;
- procure the third-party supply on behalf of the client;
- not hold or use that supply for its own interest;
- recover only the actual amount incurred; and
- separately identify the amount in its invoice.
Therefore: “Reimbursement”, “pass-through” or “at actuals” does not, by itself, establish pure-agent treatment.
The statutory conditions of Rule 33 must actually be satisfied.
The Contract Is Important — But It Is Not Conclusive
The legal position should be capable of being demonstrated from the entire transaction trail.
| Evidence | What it establishes |
|---|---|
| Client contract | What the agency undertook to provide |
| Media contract | Who purchased the media |
| Invoice | What was supplied and charged |
| Books | How the transaction was recorded |
| Actual conduct | What happened commercially |
A strong position is one in which:
Contract + invoice + books + actual conduct = one consistent story.
A red flag arises where:
Contract says principal
Invoice says commission
Books show net revenue
Media owner deals directly with client
That is not merely a documentation issue.
It is a classification dispute waiting to happen.
A Foreign Client Does Not Automatically Mean Export
A foreign customer alone does not establish export of services.
The analysis should proceed through:
Nature of service
↓ Principal or intermediary?
↓ Place of supply
↓ Section 2(6) export conditions
CBIC Circular 230/2024 clarifies that where an advertising agency supplies advertising services on its own account, the foreign client can remain the recipient even though the advertisement may be targeted at or viewed by persons in India.
Thus: Where the advertisement is seen is not necessarily where the service recipient is located.
Where all statutory conditions are satisfied, the principal-to-principal model can support export treatment.
When the Intermediary Analysis Changes the Result
Consider a different arrangement: Foreign client
↓ direct contract Media owner
with the Indian agency merely arranging the transaction
The agency may then be facilitating another person's supply.
Section 13(8)(b) of the IGST Act becomes relevant for intermediary services, potentially producing a very different place-of-supply consequence from the principal-to-principal model.
The relevant question is therefore not: “How much commission did I earn?”
It is: “Whose supply did I arrange or facilitate?”
Foreign Media Vendors: The Inward Leg Matters Too
Consider:
Foreign media platform → Indian agency → Indian advertiser
There may be two distinct supplies:
Foreign media platform → Indian agency
and
Indian agency → Indian advertiser
The first leg may require an import of services and reverse charge analysis.
The second requires its own outward supply and valuation analysis.
The outward ₹10 crore invoice does not eliminate the separate inward GST question.
GST and TDS Are Separate Classification Exercises
The GST classification of an advertising transaction should not automatically determine its income-tax withholding treatment.
For every vendor payment, ask:
What exactly did the vendor supply?
It may be:
- media space;
- advertising services;
- commission;
- professional services;
- technical services;
- software or platform access;
- hosting; or
- referral services.
The vendor's industry does not determine the withholding treatment.
The actual payment, contractual obligation and applicable tax provision do.
For non-resident payments, the analysis should proceed through:
Nature of payment → Chargeability → Domestic law → DTAA, where applicable → Withholding
The CFO's 8-Point Check
Before finalising a large advertising transaction, management should be able to answer:
| Question | Why it matters |
|---|---|
| Who contracts with the client? | Identifies the supplier |
| Who purchases the media? | Establishes the transaction structure |
| Who bears delivery responsibility? | Supports role classification |
| Is the agency supplying on its own account? | Section 2(13) analysis |
| Is Rule 33 being claimed? | Pure-agent valuation |
| Is the client outside India? | Place-of-supply/export analysis |
| Is there a foreign vendor? | Import/RCM analysis |
| What exactly is each vendor payment for? | TDS classification |
The Decision Framework
WHAT DID THE AGENCY SUPPLY?
│
┌─────────────┴─────────────┐
│ │
OWN-ACCOUNT FACILITATION
│ │
▼ ▼
PRINCIPAL INTERMEDIARY
│ │
▼ ▼
SECTION 15 VALUE FACILITATION
│ SUPPLY
▼
IS RULE 33 AVAILABLE?
│
┌─────┴─────┐
│ │
YES NO
│ │
▼ ▼
Eligible amount Value under
may be excluded Section 15Common Errors
| Mistake | Why it fails |
|---|---|
| “My margin is ₹2 crore, so GST is on ₹2 crore.” | Margin is not the valuation rule |
| “I use a media owner, so I am intermediary.” | Third-party procurement does not decide the issue |
| “It is reimbursement, so GST does not apply.” | Rule 33 conditions must be satisfied |
| “Foreign client means export.” | Section 2(6) must be tested |
| “All advertising vendors have the same TDS treatment.” | Nature of payment controls |
| “The contract says principal, so the issue is settled.” | Actual conduct remains relevant |
The Ultimate Legal Sequence
Do not begin with the margin, the GST rate or even the invoice value.
Begin with: Role
Principal, agent, pure agent or intermediary?
↓ Supply What exactly was supplied?
↓ Account On whose account?
↓ Value What is the consideration, and is any amount legally excludable?
↓ Place Where is the place of supply?
↓ Export If cross-border, are the conditions of section 2(6) satisfied?
↓ Inward Leg Is there a foreign vendor and a separate import/RCM issue?
↓ Withholding What exactly is each payment for?
CA Surekha Ahuja's Take
The invoice tells you what was charged.
The books tell you what was earned.
The contract and conduct tell you what was actually supplied.
For the ₹10 crore advertising transaction, the correct sequence is not: Margin → GST
It is: Role → Supply → Account → Value → Place → Tax
And for a cross-border transaction: Role → Supply → Place → Export Test
The real question is therefore not: “Did I earn ₹2 crore?”
It is: “Did I supply a ₹10 crore service on my own account, incur ₹8 crore as qualifying pure-agent expenditure, or merely facilitate someone else's supply?”
That distinction determines the GST analysis. The ultimate taxable value follows from the applicable valuation provisions, including any valid Rule 33 exclusion.
In a cross-border structure, the same classification can also determine whether export treatment is available or intermediary provisions alter the place-of-supply result.
Classify first.
Value second.
Determine place third.
Calculate tax last.
Statutory Framework
Section 2(6), IGST Act — Export of services
Section 2(13), IGST Act — Intermediary
Section 13, IGST Act — Place of supply of services
Section 15, CGST Act — Value of taxable supply
Rule 33, CGST Rules — Pure agent
CBIC Circular No. 159/15/2021-GST dated 20 September 2021 — Intermediary clarification
CBIC Circular No. 230/24/2024-GST dated 10 September 2024 — Advertising services provided to foreign clients
