Subscription income? Understand your tax obligations
What's the story
The digital revolution has brought a wave of subscription-based income opportunities to India, with platforms offering everything from streaming services to software. However, navigating the tax landscape for such income can be a bit of a headache. This article aims to demystify the major tax considerations for individuals and businesses earning through subscription models in India, focusing on the key sections of the Income Tax Act.
Classification
Identifying your income category
Subscription-based income is classified under either "Profits and Gains from Business or Profession" or "Income from Other Sources," depending on the nature of the activity. If your primary business is operating a digital content platform on a subscription basis, it falls under business income. If subscriptions are an auxiliary source of revenue, they fall under income from other sources.
Deductions
Tax deductions available
Businesses can claim a wide range of deductions against their subscription-based income under Sections 30 to 38 of the Income Tax Act. These include rent for premises, depreciation on equipment used for providing services, and any other expenditure directly spent to earn subscription income. Keeping meticulous records of these expenses is key, as they can substantially lower your taxable income.
GST aspect
GST implications
Even subscription-based services are not exempt from Goods and Services Tax (GST) in India. The current GST rate for online information and database access or retrieval services (OIDAR) is 18%. Businesses need to ensure they are registered under GST if their turnover exceeds ₹20 lakhs (or ₹10 lakhs for northeastern states) annually and charge GST accordingly on their invoices.
Reporting
Reporting subscription income correctly
Taxpayers earning income from subscriptions must ensure to report this income accurately while filing their annual tax returns. Depending on whether it's considered business income or other sources, it should be reported under the respective schedules of the tax return form. Incorrect reporting can result in notices from the Income Tax Department and possible penalties.
Advance tax
Advance tax payment requirement
If your tax liability after TDS is more than ₹10,000 in a FY from subscription-based activities, you are required to pay advance tax. This payment is to be made in four installments throughout the year. Failure to pay advance tax can attract interest charges. The interest is levied under Sections 234B and 234C of the Income Tax Act.