Sports endorsements are taxed the way income is: Details here
What's the story
In India, sports endorsements have become a lucrative income stream for athletes. However, managing the tax implications of these endorsements is crucial for preserving financial well-being and staying on the right side of the law. This article delves into the key sections of the Income Tax Act pertaining to sports endorsements, providing guidance on how athletes can effectively manage their endorsement income.
Income classification
Taxation of endorsement income
Income from endorsements for sportspersons in India is taxed under the head "Profits and Gains from Business or Profession." This categorization implies that athletes have to pay tax on their endorsement income at the slab rates. E.g. if an athlete's total income, including endorsements, is in the range of ₹10 lakh to ₹50 lakh, they would have to pay 30% tax on the income generated through endorsements.
Expense deduction
Deductions allowed on expenses
Athletes can (and should) deduct expenses that are directly related to earning their endorsement income. These expenses include travel costs, manager's fees, promotional expenses, and more. Keeping detailed records of these expenses is crucial, as they can greatly reduce taxable income. For instance, if an athlete earns ₹1 crore from endorsements but spends ₹20 lakh on related expenses, only ₹80 lakh would be treated as taxable income.
Advance tax
Advance tax payment requirement
Athletes earning endorsement income are required to pay advance tax if their tax liability exceeds ₹10,000 in a financial year. Payments are made in four installments throughout the year: June 15, September 15, December 15, and March 15. Failure to comply can result in interest penalties under Sections 234B and 234C of the Income Tax Act.
TDS deduction
TDS applicability on endorsement earnings
TDS applies to sports endorsement income at a rate of 10% under Section 194J of the Income Tax Act. The company paying the endorsement fee must deduct this amount before paying the athlete. Athletes need to consider this deduction when calculating their advance tax payments and filing their annual returns.
Seeking expertise
Importance of professional guidance
Decoding the intricate taxation laws and regulations pertaining to sports endorsements in India can be daunting. Athletes are strongly advised to enlist the services of a reputable chartered accountant or tax consultant. These experts can provide customized advice, helping athletes navigate the legal landscape while minimizing their tax burdens. This specialized counsel is crucial for athletes aiming to maximize their endorsement earnings and steer clear of legal complications.