Supreme Court’s dual tax blow jolts broadcast industry: Higher costs, shrinking margins, consumer fallout loom

The Indian broadcast industry, which has been facing challenges like declining ad revenues, stiff competition from OTT platforms and stagnant subscription growth, now finds itself under even more pressure. A recent Supreme Court ruling has confirmed that both the central government and state governments can impose taxes on DTH and cable TV services. This dual taxation could disrupt how TV content is priced, distributed and consumed across the country.

The verdict stems from a long-standing legal debate over whether DTH (direct-to-home) services should be taxed by central and state governments. The Supreme Court, in its decision on Union of India vs. State of Tamil Nadu & Others (2024), ruled that since DTH services involve both the transmission of content (a service) and the actual viewing of entertainment (a state subject), they fall under both central and state jurisdictions. This means service tax from the Centre and entertainment tax from states can coexist.

While the ruling may seem constitutionally sound, industry experts warn it could cause real damage on the ground.

"TV is not a luxury anymore"

"It is hard to rationalise TV as a luxury in today's India, where over two-thirds of the population have access to it," says Varun Ramdas, Senior Manager at Koan Advisory. "On one hand, TRAI treats TV as a necessity and regulates channel prices to keep it affordable. On the other hand, courts are upholding taxes that treat it as a luxury. There is a clear disconnect."

TV, Ramdas adds, is not just about entertainment. It plays a critical role in spreading public information, especially during emergencies. "The added tax burdens will inevitably be passed on to consumers, making access more expensive and hitting an already struggling industry to retain its patrons."

Industry fear cost pressures; regional players at risk

Manoj Dobhal, CEO and Executive Director of DishTV India, says the dual taxation model increases the financial burden on the sector.

"It will strain operators and potentially make services less affordable," Dobhal says. "There is an urgent need for fair taxation and regulatory clarity. The current situation risks increasing disparities between large and small players."

According to Dobhal, the government should step in to ensure a level playing field and promote innovation rather than create hurdles.

Broadcasters and cable operators say the judgment may affect different broadcasters differently, depending on their size and reach.

Manmeet Kaur, Partner at Karanjawala & Co., explains that because entertainment tax is a state subject, its application can vary widely. "This means national broadcasters, especially those working across multiple states, may face a more complex compliance environment," she says.

This increased complexity could widen the gap between large networks with legal and financial resources, and small or regional broadcasters who already struggle to stay afloat.

Further, Kaur points out that though the ruling concerns DTH services, the principles enunciated in the ruling do not bar states from imposing entertainment or luxury tax over and above the GST already being levied on OTT Services. However, the same is likely to create complications regarding enforcement since OTT services operate on a pan India model.

The ruling, according to Tanu Banerjee, Partner at Khaitan & Co., is likely to prompt a re-evaluation of pricing strategies by broadcasters and cable operators. With higher compliance and tax costs, the incentive to offer discounted bundled packages or a-la-carte channels may diminish, leading to a shift towards leaner offerings by broadcasters or “premium” pricing slabs to offset the additional tax load.

Additionally, the financial burden of dual taxation is likely to be passed on to consumers. This could happen either through higher subscription fees, reduced discounts or constrained content offerings - especially in the regional language segments. Consumers may face fewer choices or higher costs, impacting affordability and uptake of digital cable or DTH in price-sensitive rural and semi-urban markets.

Consumers to bear the brunt

The general consensus across the industry is that consumers will ultimately end up paying more.

According to Partho Dasgupta, former CEO of BARC India, the ruling comes at a time when the entire media and entertainment sector is already under financial stress.

"Margins are low, especially for small players. Larger broadcasters might manage, but many others will not survive this added cost unless it's passed on to consumers," Dasgupta warns.

He believes a more balanced approach could have been implemented. "Maybe a tiered tax structure would have been more appropriate than a blanket dual tax."

Siddharth Chandrashekhar, Advocate at the Bombay High Court, explains the legal basis of the decision but also points to its likely practical impact.

Under Article 246 of the Constitution, the Centre can impose service tax while states can charge entertainment tax. The court held that DTH services are a combination of both transmission (service) and content viewing (entertainment), and therefore both taxes apply.

But, Chandrashekhar adds, this dual taxation increases compliance costs, litigation risks and affects cash flow. "Small players and regional broadcasters don’t have large legal or finance teams. Many will either consolidate or shut down. It’s regulatory-induced Darwinism."

He also adds that OTT platforms, which are not affected in the same way, could benefit by attracting price-sensitive consumers away from traditional TV.

A senior executive from a leading broadcast network, speaking on condition of anonymity, said that the industry is still figuring out its response.

"Discussions are happening within companies and industry bodies, but there is no consensus yet. We still need to assess the full implications before deciding the next steps."

While the Supreme Court verdict is final, broadcasters could be exploring a curative or review petition. However, legal experts say this would be a long shot. More realistically, the industry is now looking toward the Ministry of Information and Broadcasting and the Finance Ministry for intervention or clarity.

If no relief is offered, experts warn of changes in how TV is packaged and priced. Channel bundles may shrink, discounts may vanish and viewers could see monthly bills rise. In the long run, this ruling could push the industry further toward consolidation and drive more viewers to OTT platforms - shifting the entertainment landscape in yet again.