A How To: Taxes For Creators And Influencers
Updated: Jul 15, 2021
Filing your taxes can seem like a daunting task for which you need external assistance and practice! The profession of content creation is not well-documented in older legal documents or government systems, so many accountants or tax acts may not be perfectly equipped to cater to your particular sources of income and professional practices.
But don’t worry - with the right information and a little bit of focus, getting comfortable with the process of filing taxes without relying on someone else can allow you to plan your finances with certain pointers and strategies in mind!
In this article, we will take you through the basics of taxation for content creators: at what stage do you need to begin paying income tax, which form does your work fall under, what kind of accounts must you maintain, filing dates, and some insights on how to save on taxes.
Who Needs To Pay Income Tax
First, do you need to be paying income tax? Only people making above 2.5 lakhs p.a. and are also under 60 years of age are obligated to pay this tax. Alternatively, if the gross receipts are more than Rs. 25 lakhs in any one of the three preceding years, then you are required to file your taxes.
Track your income during one financial year, i.e., from April 1st to March 31st to see where you fall. Since most payments for content creators are online transactions, it should be easy to maintain this record.
Which Form Do You Need To Fill
The Income Tax Act of 1961 sets forth various different forms from ITR1 to ITR7, and depending on the nature of your income and age, one of these will apply to you. It is likely that ITR3 - which covers businesses and professionals of individuals, partners in firms, directors among others - applies to you. Creators can be taxed as “Profits and Business or Profession.”
What Accounts and Records Do You Need To Maintain
The Income Tax Act lists specific professions and the accounting rules they are required to follow. Since content creation is relatively new, it is not included in the list. Instead, content creation comes under “professionals carrying out non-specified professions.”
According to rule 6F, these professionals have to maintain:
Cash book with records of any cash transactions
Journal with credits and debits
Ledger as an aggregated and simplified account of what is noted in the journals
Photocopies of bills worth more than 25 rupees
Originals of bills worth more than 50 rupees
When to File Your Taxes
ITR3, the taxation form for professionals, needs to be filed on or before 31st July of the Assessment Year.
How To Save on Taxes - Computation of Taxable Income
The portion of your income which is taxable refers to total income minus expenses. In other words, your net profit excluding all the expenses you incur to maintain your profession.
As a freelancer, you cannot claim the standard 50,000 rupee deduction which is common with other specified professionals. Freelancers can only claim deductibles on professional expenses not used for personal reasons. Therefore, stationary, the internet, a small portion of rent and electricity bills, recording equipment, and so on which are involved in helping you be a content creator can be deducted to arrive at your taxable income.
How To Save on Taxes - Presumptive Taxation
When your net expense is less than 50% of your revenue and your revenue is more than 2.5 lakhs, you can opt for presumptive taxation. Presumptive taxation means an individual’s taxable income is directly taken as 50% of the gross revenue. Under this system, you would pay taxes according to the tax rates for this bracket of taxable income.
Presumptive taxation prevents you from claiming other expenses to deduct from your income. Further, you don’t have to keep the records and accounts as outlined above. ITR 4 must be filled in place of ITR 3.
This can be a big saver for creators. If your income is greater than 2.5 lakhs, your net receipts are less than 50 lakhs, and if expenses less than 50% of income, ITR 4 and presumptive taxation will take expenses as 50% and taxable income will be half. This can make a significant difference in the amount you pay as tax.
Save your time and money by taking your taxes into consideration when creating plans for your work, budgets, and timelines. You will thank yourself for maintaining an organised system throughout the year when July rolls around.
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