The internet has made it possible for individuals to create content and monetize it over various social media sites such as Twitch, YouTube, Instagram, X (formerly known as Twitter) and others.
As most of these social media websites are based abroad, how will an individual who earns money from these websites get taxed?
How will earnings from social media be taxed as per income tax laws?
The income earned from social media sites such as X, Instagram, YouTube will be taxed depending on the head under which it is classified for an individual. It can be classified either under ‘Income from business and profession’ or ‘Income from other sources.’
The level of activity as well as the quantum of income would be relevant to decide in which head income from social media will be taxed.
If the person receiving income from social media websites is entirely engaged in content creation on a whole-time basis and revenue earned from social media is the primary source of income, then it will be classified under profits and gains from business or profession and taxed accordingly. If the person is casually earning and it is not a substantial amount in comparison to his other incomes, then it is classified as income from other sources and taxed accordingly.
What is the income tax rate applicable for incomes earned from social media?
There is no special income tax rate specified for income from social media websites. All the incomes are to be reported in the income head (as applicable) and after claiming applicable deductions, these incomes will be taxed at income tax slab rates applicable to them.
What are the deductions that will be allowed for social media incomes?
The income tax rules for claiming deductions under business income and income from other sources are different. Only expenses that are directly and explicitly incurred wholly for the purpose of generating that specific income are permitted as deductions if income is taxed as other sources. In contrast, in the case of business income, the costs incurred for the operation of the business are eligible for deduction. It is easier to claim expenses as deduction under business income than other sources head.
An individual should keep a record of all expenditures in case the income tax department asks in the future. An individual is required to undergo certain compliances such as tax audit, maintenance of books etc. if income is taxed as business income.
Is Tax Deducted at Source (TDS) applicable on these incomes?
TDS will be applicable irrespective of payment made by an Indian or foreign entity of the social media company. If the payment is made by an Indian entity, TDS would be deductible as per Section 194J of the Income tax Act, 1961. The tax will be deducted at 10% if total payment exceeds Rs 30,000. If the income is received from foreign entity, TDS would be applicable depending on the country’s laws. One needs to check Double Taxation Avoidance Agreement (DTAA) to see if the tax credit can be availed for tax deducted outside India.
Does an individual need to register for GST for such incomes?
The incomes earned from social media websites can be considered as business income. So, in this case, does Goods and Services Tax (GST) registration need to be undertaken?
GST registration will have to be undertaken on these social media website incomes if the total income crosses the specific threshold. In GST regulations, services provided by YouTubers, influencers, and bloggers are categorised as Online Information and Database Access or Retrieval Services (OIDAR). This covers services that use technology to distribute data online.
If an influencer’s annual income crosses Rs 20 lakh (or Rs 10 lakh in special category states), they must register under GST. GST at 18% is applied to services offered by registered influencers and bloggers. A GST-registered individual is required to raise and issue an invoice on the social media websites and mention all details including GST number on the invoice.
How to report income from social media in ITR
The reporting of income in the ITR form will depend on who is paying the income, i.e., an Indian company or a foreign company. If the payments are received from a foreign company, then it is a foreign income, and the recipient has to file an ITR irrespective of the basic exemption limit.
If the payment is made via an Indian subsidiary, then the source and receipt both are in India, so there is no concept of foreign income and schedule FA. It is advised to read the communications received from social media companies to understand the location of service, based on which tax disclosures are varying.