The Covid 19 Pandemic has led to the fastening of seat belts for the digital revolution. The revolution which was gaining pace swiftly pre-pandemic as well took a meteoric pace post the emergence of the pandemic. This digital revolution has led to an increased usage of YouTube for the spread of information & live streaming of events. This growth has led to a significant rise in new channels on the Alphabet Propriety Platform. Moreover, subscription to channels on the platform is free. India is among the top 3 consumers of YouTube, second only to the US with 9.2% usage coming from India. YouTube has 200 crores, active users, every month along with 3 crore daily users. As per YouTube trends, 94% of the Indians in 2020 learned to do new things by themselves learning from the platform.
Viewership is followed by brand deals. With amass viewership on the platform, it ranks second after Facebook for brands to post their online videos. 53% of people use YouTube as a preferred platform for marketing. 90% of the users in 2019 said that they discovered new brands from YouTube.
YouTube has led to a full-time occupation for content creators leading to huge revenue creators for the world. With revenue creation comes taxation, let us understand the income tax perspective of the same.
Revenue generation from YouTube comes from YouTube Adsense i.e., viewership from brand advertisements. Other earnings also come from YouTube Premium, Super Chats, Super Stickers & Channel Memberships As per the YouTube terms & conditions ‘All the payments from Google shall be made inclusive of Tax’. It is pertinent to note that Google’s contracting entity is Google Asia Pacific i.e., a Singapore Based Entity. When payment has been made by a foreign country, the taxation rules of that country along with the Double Taxation Avoidance Agreement (DTAA) rules of that country shall prevail. As per the current DTAA between the 2 countries, income shall be taxable in the country in which the creator is located.
Taxability will also depend on the assessee whether the person is a sole proprietorship, partnership firm, LLP, or a company.
If YouTube is a full-time business for the assessee, then it shall be taxable under the head ‘Income from Business/Profession’. If it is a part-time activity then it is taxable under the head ‘Income from Other Sources.’
For Example, Mr. Ram is a partner in a Multinational Corporation & also running an information channel along with it. But the Multinational company is a full-time activity & YouTube is part-time activity, then income from YouTube is directly taxable under the head Income from Other Sources.
On the contrary, if Mr. Ram is also a daily vlogger along with being a partner in an MNC, then the income from YouTube shall be taxable under the head Income from Business & Profession
If it is a full-time activity then the assessee can claim a deduction of expenses incurred against the business. Expenses such as internet expenses, electronic devices depreciation, maintenance of electronic devices & salaries of employees, etc.
If the income is taxable under income from other sources, then all the gross receipts are taxable as income & no expenditure is allowed as a deduction against the gross receipts.
Alternatively, under Section 44 AD, the assessee can report 8% of gross receipts from YouTube as income under the Presumptive Taxation Scheme which is deemed as inclusive of all expenses. The assessee can even save 2% more on taxes by opting for 6% presumptive taxation. The option for 6% taxation is available for receipts which have been digitally received & all the receipts from YouTube are received digitally.
But if the assessee reports income lower than 8%/6% of gross receipts or if the turnover of the assessee exceeds 2 crores, then the assessee has to maintain books of accounts & get them audited by Chartered Accountant. Also, if the assessee needs to claim losses & carry forward the losses then the assessee has to get itself audited as well.
Continuing the above-mentioned example of Mr.Ram who receives Salary from MNC & Gross Receipts from YouTube
As it is visible that no deduction of expenses is allowed even if incurred by the assessee if the income is taxable under Income from Other sources
If the income is shown under presumptive income under section 44AD then 6% of 6 Lakhs is deemed as income which is deemed as net income after all the expenses for Mr. Ram
If Mr. Ram opts to get the books audited then he can claim all the expenses of 7,80,000 incurred against YouTube Receipts of 8,00,000. Then only 20,000 is treated as net income from YouTube for Mr. Ram
As per Chapter 3 of the US Internal Revenue Code, Google has the responsibility to collect tax information of all the content creators on its platform & if a content creator outside the US gets his views on Youtube from the US audience, then proportional income shall be taxable in US & such income shall be withheld in the US on monthly basis. Content creators have to go to the advanced mode in YouTube Analytics to gain information regarding income earned from various geographies. Income includes all types of income i.e., income from Viewership, Super Chats, YouTube Premium, Super Stickers, etc.
The tax withholding rate shall be decided based on the treaty between the country & US. The tax rate for Indian content creators on YouTube is 15 percent based on the Double Taxation Avoidance Agreement between the two countries. Indians will also get credit for the taxes paid in the US to avoid double taxation of income.
It is pertinent to note that, tax withholding shall be payable on the gross receipts & the US govt will not provide any deduction of expenses against the gross receipts. But while filing returns in India, an individual can claim a deduction of expenses on Indian as well as US income from YouTube.
Providing tax information is paramount to gaining treaty benefits between the two countries. If no tax information is provided to the US tax department, then the maximum applicable tax rate shall be deducted from the earnings of the content creators.
This maximum tax rate is 30% of the total earnings for Business accounts & 24% for individual accounts depending upon the status of the Adsense account
For Example, A taxpayer has the following net earnings (after deduction of expenses) in FY 2020-21