Sunday, 4 August 2013

Income Tax on Adsense / Website Income (Presumptive Taxation Under Section 44AD)

The bloggers and people running websites in India are always under a dilemma in respect of taxability of the profits / income arising out of their Google Adsense Account or revenue otherwise earned through websites. Normally, it is suggested that it should be treated as Normal Business Income (where profit is arrived at after deducting the expenses related to the business) and the tax liability should be arrived at accordingly. However, we have different view on this aspect. 

      Section 44AD of the Indian Income Tax Act, 1961 deals with the presumptive taxation of income for small enterprises. This Section was initially meant to be introduced for small retailers. However, Section 44AD of the Income Tax Act, 1961 was amended later on and with effect from Assessment Year 2011-12 the scope of the section has been enlarged and it now includes any type of business except business of  plying , hiring or leasing goods carriages referred to in section 44AE. The provisions of section 44AD are available to an individual, Hindu undivided family or a partnership firm, who is a resident in India, but not a limited liability partnership firm and whose annual turnover or gross receipts does not exceed Rs. 60 lacs (Rs. 1 Crore from the Assessment Year 2013-14 onwards). As per section 44AD, a sum equal to 8% of the total turnover or gross receipts of the assessee in the previous year on account of eligible business shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". The 8% of the turnover/ gross receipt is minimum threshold and assesee is free to declare more than 8% as his profit and gain. Such provision are provided to make the small businesses declare profit at the rate mentioned above without maintaining any records and without allowing any other deduction except deduction  allowable u/s 80C to 80U of the Income Tax Act.
       
     Considering the provisions of Section 44AD of the Income Tax Act, 1961, in our view, the income earned through Adsense account with Google or similar income from running the website(s) can be considered under Section 44AD of the Income Tax Act. In such case, 8% of the total amount received in a year through Google Adsense Account and similar revenue earned through a website can be treated as Income of the Year and the applicable tax can be paid accordingly without worrying about keeping cumbersome record of expenses. It can be further simplified by the following example:
T     Total Amout Received in a Financial Year through Adsense / other website revenue - Rs. 10 lac
        8% of the total Receipt  - Rs. 80,000. 
       Hence, income for the purpose of taxation is Rs. 80,000 and no tax is payable in such case as the income of Rs. 80,000 is less than the minimum threshold for the purpose of Income Tax. 
      
      If we take another  example where total receipts of the year are Rs. 50 lac, the 8% of which will work out to Rs. 4,00,000 and the tax will be payable as per applicable slab rates on such sum of Rs. 4,00,000 (In this case, tax for the Assessment Year 2013-14 for an individual other than senior citizen will work out to Rs. 20,600).
      
     Hence, in our view, the tax on income from adsense account and similar income from website(s) can be covered under Section 44AD of the Income Tax Act, 1961. It may please be noted the views given above are the personal views of the author of this article and the readers are advised to consult their own tax advisors in this regard. The author or this website shall not be in any way responsible or liable for any loss or liability incurred or suffered by any person as a result of any action or decision taken by such person based on the views given above.

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