This post deals with the income tax liability. We’ll get into the GST liability in a separate post.
Instagram, Facebook and Twitter
Celebrities and Influencers receive payments for sponsored posts. Your payments may be based on a contract which may be one-time or a recurring payment for multiple posts.
In addition to the payments for sponsored posts, Youtubers also receive ad revenue from Youtube (we know Youtube demonetization is an issue, but stick with us)
Treatment under the Income Tax Act
Payments received for sponsored posts and Youtube ad revenue are considered income from profession. For individuals, this income is taxable at slab rates.
There’s a few options when it comes to Income from profession:
- Applicable to Residents whose total gross receipts are less than INR 50 lakh during the Financial Year.
- 50% of the gross receipts is considered as taxable income.
- No other deductions are allowed against this income.
Income from Profession
- All income and expenditure is considered and net profit is considered as taxable income.
- Regular provisions of the Income Tax Act apply for disallowances, exemptions, deductions, etc.
- If income declared is less than 50% of gross revenue, tax audit under the Income Tax Act is applicable.
The following are a few examples of contentious points that have come up in the past. Unfortunately, there is no one size fits all answer and each of the cases has to be evaluated on its merits:
- For a tech reviewer, is purchase of a laptop business expenditure? If yes, is it an asset (claim depreciation)? Or should this be charged against revenue since it is recurring expenditure?
- For a makeup expert, is purchase of makeup a capital expenditure or revenue expenditure? Is it business expenditure or should it be considered personal expenditure. Usually, the fact is that this makeup is used for personal and professional use – how do you draw the difference between business and personal expenditure?
- Is professional equipment purchased an asset? What if a tech reviewer purchases this for the purpose of reviewing it, is impressed by the device and decides to start using it for filming their videos?
- What about video editing software? Should this be capitalized? What if you pay a subscription fee for this software? It should definitely be charged against revenue, right?
- A Youtuber created video lectures on stock markets in India. Substantial expenditure was incurred for creating these videos – camera crew, renting equipment, graphic designers, etc. These videos will remain on Youtube for a significant period of time (maybe forever) and will earn ad revenue for multiple years. Should the expenditure be charged to revenue? Or should the video lectures be treated as an intangible asset and depreciated over time?
Keeping these complications aside, we created an example to help you decide whether to opt for the presumptive scheme or regular income from business.
Ms. Awesome is an Instagram influencer who earns INR 20 lakh through sponsored posts during FY 2019-20. Her expenditure includes the following:
- Camera Crew and Editors Salary – INR 2 lakh
- Marketing team – INR 3 lakh
- Total software subscription fee – INR 50,000
In this case, Net profit would be INR 14.5 lakh.
It’s clear that the presumptive income scheme would be more beneficial for Ms. Awesome since income tax would have to be paid only on INR 10 lakh.
The above provisions are just the tip of the iceberg when you try to decipher the income tax act but we hope it gives you a starting base. If you need any help with figuring our your income tax compliances, you can always contact us at [email protected] or post a query.