Income Tax on Revenue From YouTube

YouTube video blogging, popularly known as vlogging has reached at the peak of its popularity by now. The trend of googling for a content has shifted to you tube search. Many budding vloggers are making money from YouTube. However most of them are not aware of the tax implications. Let’s try to explore this in detail.

Note: The same treatment is applicable for Adsense Revenue from blogging as well.

Why Income from YouTube is Taxed in India?

As per the Income tax laws, if the income is received in India, it’s taxable in India. I am obvious that now you will be thinking why then TDS for the same was not deducted. If you read through the AdSense contract entered between Google and Content creator in India, you will notice that the contracting google entity is Google Asia Pacific Pte. Ltd i.e. Singapore entity. The snippet of the contract is here:

Now lets see what does the contract specifically say about withholding tax or TDS:

It’s very important to understand that when payment is made by a foreign company, the taxation rules of that particular country along with DTAA provisions will hold good. Double Taxation Avoidance Agreement(DTAA) is signed between countries to avoid taxing the same income in both the countries.  As per Article 7 of DTAA Agreement between India and Singapore, this income shall be taxed in the country in which enterprise is present. I.e. India.

How is AdSense Income treated under Income tax law?

The income from YouTube can be treated as:

• Income from Business or Profession
• Income from Other Sources

 Let’s now try to understand the above scenarios:

Income from Business or Profession

If vlogging is your full time activity or main source of income you may offer your income under Income from Business and Profession for taxation. You may run your business as sole proprietor, Partnership Firm, LLP or Private Limited Company.

You will be taxed as sole proprietor unless you register your business as a company, LLP or Partnership. Here, you are effectively running a business and you are eligible to deduct all the expense you incurred to make this income.

Let’s now try to understand this with an example. Mr A earns Rs. 20 lacs during the FY 2019-20 by doing travel vlogs. He incurred following expenditure to earn the income.

1.Marketing Expense – Rs . 1,00,000

2. Advertisement Expense – Rs. 50,000

3. Travelling expenses- Rs. 5,00,000

4. Internet expenses- Rs. 12,000

5. Camera (Capital expenditure) – Rs. 3,00,000

6. Car (Capital expenditure) – Rs.6,00,000

Here , Mr. A need to pay tax only on the Net Profit made during the year. Since assets like camera and car can be used over a period of time, only depreciation (40 % on camera and 15% on car) can be claimed as expenditure as per income tax laws. However, the balance amount can be claimed as expenditure in the coming years.

The total expenses Mr. A can claim is as below:

1. Marketing Expense – Rs .1,00,000

2. Advertisement Expense – Rs. 50,000

3.Travelling expenses- Rs. 5,00,000

4. Internet expenses- Rs. 12,000

5. Camera (Capital expenditure) – Rs.1,20,000 (40%*3,00,000)

6. Car (Capital expenditure) – Rs. 90,000(15%*6,00,000)

The Net Profit made by Mr. A after setting of the above expenditure of 8,72,000 is Rs.11,28,000. Tax should be computed at applicable rates.

If you are making loss, you can carry forward this loss and set off against future profits.

Note: To claim the expenditure, the business should maintain proper documents relating to the same.

Alternatively, individuals/HUF/Resident Firms can make use of Presumptive taxation under section 44AD of income tax act and declare 6% of gross receipts (as receipt is through electronic medium) as Net Profit. Books of accounts need not be maintained if presumptive taxation is opted. This is in fact the best option to save tax if your business makes consistent profit.

Notes:

a. The benefit of this provision can’t be utilized if your gross receipt exceeds Rs.2 crores.

b. If you make loss in any year and opt to file returns under normal provisions, then you can’t use this option for a period of 5 years.

Not to forget, if your gross total income exceeds Rs 1 crore, you must follow all bookkeeping requirements under Rule 6A and get your accounts audited by a Chartered Accountant(CA) under section 44AB of Income Tax Act,1961. However, if you are opting for 44 AD presumptive taxation you are exempted from Audit under section 44AB.

Income from Other Source

If vlogging is your hobby and you are earnings are not huge, you may opt to offer your income under Income from Other Source for taxation. It’s very common these days that people start vlog to earn an additional source of income.

Let’s try to understand this with an example. Mr. B is employed in XYZ Ltd and earns Rs. 40,000 Per month. He is interested in bikes and started a vlog. He started uploading bike review videos on weekends and made 1,00,000 during the FY 19-20.Mr. B incurred an expenses of Rs.30,000 attributable directly for making the videos (excluding capital expenditure). Here, he can show Rs.4,80,000 under Income from salary and Rs. 70,000 from Income from Other Source while filing the Income Tax Return(ITR). Tax shall be computed at applicable rates after considering allowable deductions.

Note: Capital expenditure can’t be claimed as expenditure under section 57 of income tax act. Hence it’s always advisable to offer the income under Income from Business and Profession if there is a capital expenditure like purchase of Camera, Computer etc. exclusively for this purpose.

Is Advance Tax applicable for AdSense Income?

Advance tax shall be paid if the total tab liability is Rs. 10,000 or more in a financial year. Nonpayment of advance tax will attract Interest under section 234B and 234C.

Consequences of non-payment of Tax and non-filing of ITR? 

a. If you don’t pay tax, the income earned will be considered as illegal. This is in fact concealing income to evade tax. A penalty ranging from 100% to 300% of the tax evaded will be charged as per section 271(C)

b. A penalty of minimum 10% and maximum of 90% of undisclosed amount can be charged under section 271AAB based on circumstances.

c. If you don’t file the return on or before the due date, the rate of 1% will be charged every month, or part of the month, on the amount of tax remaining unpaid as per section 234A.

To sum up if your total income from Adsense is less than Rs. 2.5 lac, then you are not required to file ITR. You may read our article Things to keep in mind while filing income tax return to know more about ITR filing.