Impact of Youtube's tax update on Indian Youtubers
Updated: Mar 28, 2021
Google sent out an email to Youtubers in India informing them that they will be deducting US taxes from payments to creators (Youtubers).
How does this impact Youtubers in India? Can you claim foreign tax credit for Youtube deducted tax in India?
We've got your back.
What's covered in this article?
What's the new Youtube tax?
Youtuber's in India will now be subjected to withholding tax in the US. Youtube will be deducting tax as high as 24% from your income.
“Over the next few weeks, we’ll be asking you to submit your tax info in AdSense to determine the correct amount of taxes to deduct, if any apply. If your tax info isn’t provided by May 31st, 2021, Google may be required to deduct up to 24% of your total earnings worldwide,” said Google in the email.
Tax will be deducted from youtuber's earning revenue from US viewers in terms of ad views, YouTube Premium, Super Chat, Super Stickers, and Channel Memberships. You won't have to pay tax for the money. you make from viewers outside the US.
Google has done a very good job of explaining this with a few FAQs. Linking that here.
Youtube has also released a very useful video on action you need to take:
So Youtube will tax all my income?
No they will not. Youtube will deduct tax only on income that you make from US viewers. If a content creator in India makes INR 50,00,000 and INR 20,00,000 is from US viewers - tax will be deducted only on INR 20,00,000.
What is the tax rate that Youtube will deduct for Indian Youtubers?
If you submit all relevant tax documentation: Youtube will deduct tax at 15% from your income from US viewers. This is because Youtube is treating this as royalty / fees for included services paid.
Youtube will deduct no tax on income from non-US viewers.
If you do not submit all relevant tax documentation: Youtube will deduct tax at 24% on all your income, whether from US viewers or non-US viewers.
We believe Youtube will ask you to fill a W8-BEN. You will have to ensure you take treaty benefits in the W8-BEN so that tax is deducted at 15% only (and not 24%).
You have till 31 May 2021 to submit the required documentation. If you fail to submit the requested documentation, Youtube will deduct tax at 24% on all your income.
If you need help filing your W8-BEN, feel free to contact us.
Foreign Tax Credit
While we won't go into Foreign tax credit in detail in this article (you can read our article on Foreign Tax Credit for this), note that you will most likely be eligible to claim Foreign tax credit on the tax withholding in the US.
The India-US DTAA as well as Income-tax Act, 1961 allow you to claim credit for any taxes deducted in the US. The tax credit allowed will be the lower of Indian tax due or tax deducted in the US.
You can read on how the India-US DTAA works here.
We know all of this tax mumbo-jumbo can be very confusing. Let us simplify this with 2 examples. This should clear things up.
Example 1: Part US and Part Non-US Viewers
Ajey Nagar is an Indian Youtuber who has been producing videos for the past few years. He runs a successful Youtube channel which earns INR 50 lakh per year. Youtube determines that INR 40,00,000 of this income is earned from US viewers. The balance INR 10 lakh is earned from views in India and Europe.
How does tax work in this case?
Let's assume that Ajey submits all the necessary tax documentation before 31 March 2021.
Here's how his tax would work:
For the sake of simplicity, we have assumed revenue to be equal to profit. However, this is seldom the case. There is always significant amount of deductions available under Indian tax laws.
We have assumed tax rate in India to be a flat rate of 30% for the sake of simplicity.
This is a theoretical example. Claiming of Foreign Tax Credit (FTC) can be a problem in itself. Read on FTC here.
Example 2: Only Indian viewers
Bhuvan is a popular an Indian Youtuber who earns INR 2 crore from his Youtube channel. His audience is completely Indian based and has no viewers in the US (sorry Bhuvan).
How does tax work in this case?
Bhuvam will have to pay tax in India under the normal provisions of the Income tax Act - there is no change for him because of this rule.