Set to earn income through Twitter (X) posts? Know how it will be taxed

Likewise, Aniket Singhla started a masterclass on entrepreneurship. As his fan following grew, so did his income. Now, he earns lakhs from his online workshops.

If this sounds like a fairy tale, it isn’t. In fact, it’s quite common. If you are able to connect with the masses, companies and brands want a piece of you. They want your social media reach. Some might even want you as their brand ambassador.

Small wonder then that recently the income-tax department raided certain influencers and asked 15 of them to justify zero income and foreign trips and luxury shopping — posts of which they had shared on their social media accounts.

This is indicative of the artificial intelligence tools being used by the I-T department to track posts of individuals who splurge but do not file returns or declare low income.

If you are one of many who earn money through social media platforms, then know this: you are supposed to declare your income and file your returns. In fact, income generated from foreign countries is one of the criteria for the mandatory filing of returns, even if the yearly income is below the threshold of Rs 2.5 lakh.

“If a resident has foreign income, then there is a good chance that they have foreign assets too. In that case, filing income tax returns is mandatory even if income is less than 2.5 lakh,” says Sudhir Kaushik, co-founder and CEO of e-filing intermediary TaxSpanner.com.

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Type of income

There are many types of income that would hit your bank or remittance account if you have been a social media content creator. You could receive money for promotions, subscription and workshop fees, and commissions for selling merchandise. Some receivables could also be in kind such as gifts and products for review.

The I-T department has been levying a tax deduction at source (TDS) of 10 percent on gifts worth Rs 20,000 or more in a year, starting July 2022.

“The TDS deductions are listed in your annual information statement (AIS) and should be checked for authenticity,” says Paras Savla, Partner at chartered accountancy firm KPB & Associates.

But your responsibility doesn’t end with TDS. You need to mention all the income under one of the two heads  — business income (if self-employed, or a partnership firm, etc), or as income from other sources (if salaried and pursuing social media part-time).

“Income from ads on your YouTube channel, sales from your website, subscription fee, etc, are mostly covered as business income,” says Kaushik.

Also read | Income-Tax Filing: What is AIS and how it helps in filing returns

Expenses you can deduct

The benefit of filing a return and declaring your income is that you can also declare losses/expenses incurred in creating the content for social media.

“If you declare your earnings as business income, then there are a number of expenses you can deduct from the money you make. For instance, the cost of hiring cameras and other equipment, studio hire, make-up, location, and other costs,” says Savla.

However, if you are a salaried person then the only option is to show the social media earnings as income from other sources, where several restrictions are imposed on claiming expenses. “Limited expenses can be claimed under income from other sources in such a case,” adds Savla.

Ensure that you preserve all receipts and calculate the expenses or losses factoring in depreciation, etc.

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How are you taxed?

After deducting expenses from your total income, you can claim income tax exemptions available for the payment of your home loan, life and health insurance premium, investments in tax-saving fixed deposits or mutual funds, tuition fees, conveyance, and other expenses. The net income thus declared would be taxed per the tax bracket you fall under.

“Business expenses incurred specifically for running that business are deductible from business receipts, and the net income, after eligible deductions under chapter VI A, is taxable per the applicable slab,” says Kaushik.

There is also a simple tax compliance system available for business owners, where you declare that half your income is not subject to tax due to expenses. A simpler tax return form and waiver from audits is available for such individuals, provided you meet the conditions.

“For certain professions notified under section 44 ADA, only 50 percent of the income is taxable. The condition here is that your gross receipts are less than 50 lakh in FY 2022-23, or 75 lakh in FY 2023-24,” says Kaushik.

Also read | ITR Filing: Don’t forget to declare income from ‘other sources’ when filing tax returns

Nuts and bolts

If you have been receiving money from social media companies or brands located abroad, then do not forget to fill a specific form within the income tax return. “If you have any foreign income then do not forget to fill schedule FA,” says Savla.

This is specifically asked for because in case of foreign income, the I-T department can call for re-assessment of returns going back 16 years instead of the three-year period applicable for normal returns, adds Savla.

Hence, remember to preserve the bills and receipts of the year 2022-23 for at least 16 years.