Ok, I will just give one example of portal moneycontrol.
I know somebody over there and i had a discussion with their accounts department as well. They said they show it as income from advertisement and pay whatever necessory taxes.
In my previous company we had this same problem. Income was much more than 10 Lakhs per year from Adsense. We had no choice but to pay Service tax on whatever we are earning through Adsense.
If Service tax has been paid on adWords.. then how can the SAME tax be paid again on adSense?
please note here that You cannot prove that google is paying Service Tax on Adwords. So it is your liability to pay relevant taxes. Service Tax department cannot catch hold of google because the payment is coming from Ireland.
Again I am saying look at the whole thing from the Taxman's point of view.
His simple question is
1) You are earning X amount per month from google as what?
It all depends upon your answer. If you say this is Advertisement charges for showing advertisement on my site then it comes under service tax. You cannot show it as sell of goods can you? So in one way or other its Sell of Services. Which comes under Service Tax in india.
In my opinion there are few options if you are earning more than 10 Laks per year.
1) Try to open a Company in SEZ in india or abroad and show all your income in that company.
2) Divide your income in 2-3 adsense accounts with different names (your wife, brother, father etc.) or different companies in order to keep the earning in each account less than 10 lakhs.
(I know Adsense is having a problem with this.But IMHO if you have 2 legitimate entities such as 2 different persons or 2 different companies, then Adsense wont have a problem)
Many regular (not adsense ones) businesses do this to avoid getting under service tax.
3) Simplest option is pay service tax by reverse calculating the amount and Service tax on top of it so that it will match total amount coming from google and raising invoice to google. (Which google has already paid :) ).
I hope this is useful to other indian publishers.