Navigating Tax and Taxation for Artists and Creative Professionals in India
Taxation can be a labyrinthine journey for artists and creative professionals in India, given the intricate nature of their income streams and the diverse tax implications they face. From income tax considerations to navigating the complexities of Goods and Services Tax (GST), understanding the taxation landscape is crucial for maintaining compliance and optimising financial management. In this comprehensive guide, we delve into the intricacies of taxation for artists and creative professionals, exploring both direct and indirect tax structures and providing insights to help navigate this complex terrain.
Direct Tax Considerations for Artists and Creative Professionals
Income Tax (IT):
IT filing for artists and creative professionals entails meticulous attention to detail, given the diverse sources of income they often rely on. From freelance work to royalties, art sales, and licensing, each income stream requires careful reporting and categorisation.
Freelance income can fluctuate, necessitating diligent tracking and reporting during IT filing. Similarly, royalties earned from published or utilised work, such as lyrics or music, must be accurately categorised and reported.
Art sales may attract capital gains if the selling price exceeds the acquisition cost. Proper record-keeping of sale transactions, including purchase price and date, is essential for calculating capital gains accurately.
Deductions:
Income – Expense = Profit. You are taxed on your Profit and not on your overall income. But not all expenses can be treated as deductions. Therefore reasonable, legitimate, justified business expenses can be offset if you know what they are and how to present them correctly.
Tax deductions or deductibles play a vital role in lowering taxation liability for artists and creative professionals. Please note this is separate term from TDS. Expenses such as studio rent, art supplies, sound banks and packs, professional equipment, and training courses can be claimed as deductions, provided proper documentation is maintained.
Under Section 80QQB of the IT Act, literary artists can avail deductions on royalties. It is essential to keep abreast of the latest taxation laws and provisions to maximise deductions and minimise tax burden.
Tax Deducted at Source (TDS):
TDS refers to the amount deducted and withheld by your Clients before they pay you your fee. This amount is paid to the government on your behalf as part of your income tax and is a legal requirement for all Organisations / Companies / Institutions to do so as a compliance. Individuals normally do not deduct TDS before paying you, except for in certain cases such as RENT paid over 50,000/- but that does not concern your artist income.
Simply put, it’s just a way for the government to track your income and ensure they receive their share of your taxable income. Your Chartered Accountant (CA) will tally all the TDS withheld against your income and set it against your calculated year end income tax payables. This will reduce your taxable income at year end so remember to collect those TDS certificates on time and ensure you get the benefit of all the TDS deducted.
Royalty Income Taxation:
Royalty income, a significant revenue stream for artists and creative professionals, is subject to special tax rates. The latest amendment to the Finance Bill, 2023, introduced a reduced taxation rate of 20% on royalty income, recognising its unique nature and contribution to the creative industry.
Under the revised structure, royalty income from various sources, including music, literary works, patents, trademarks, and franchises, is taxed at the preferential rate of 20%.
Deductions under Section 80QQB of the IT Act further enhance tax benefits for recipients of royalty income. Accurate reporting and compliance with tax laws are essential for individuals or entities receiving royalty income to avoid penalties and ensure transparency in taxation.
Income from foreign sources
Foreign income may affect artists’ taxes, such as royalties from international publications or art sales to foreign buyers. In such cases, it is crucial to determine whether India taxes the income and whether Double Taxation Avoidance Agreements (DTAAs) with the respective countries can prevent double taxation.
To avoid double taxation, countries sign DTAAs. Artists must carefully review relevant DTAAs and claim benefits to prevent double taxation.
Indirect Tax Implications for Artists and Creative Professionals
Goods and Services Tax (GST):
The introduction of GST in 2017 brought significant changes to the indirect tax landscape, impacting various sectors, including the music industry. GST is levied at different rates on goods and services, with specific implications for artists and creative professionals.
Musical instruments are subject to varying GST rates, with higher rates applicable to western instruments compared to handcrafted Indian instruments. Additionally, CDs, tapes, DVDs, USBs, sound recorders, amplifiers, and sound reproducers attract GST at different rates.
Live music concerts, dance performances, and theatre shows are subject to GST based on ticket prices. Events with ticket prices below Rs. 250/- are exempt from GST, while events with higher ticket prices are taxed at 12% or 18%, depending on the ticket price range.
Small event organisers have the option to avail composition schemes and pay GST at a flat rate of 1% -6% of their turnover. Input tax credit is available for event organisers, except those under the composition taxpayer scheme.
Artists and musicians who cross 20 Lakhs in Revenue per annum must register and charge GST using valid invoice formats and record the same, collecting and filing as required by Law. Adding to the complexity is the requirement for interstate supply of services, where artists working in multiple states would need to register for GST even if their revenue is under the 20 lakh bracket.
When supplying service or selling product within the state – CGST & SGST is applicable while IGST is applicable for Interstate supply or goods and services.
You must mention the SAC or HSN code based on the service or product you are supplying. Simply put these are codes to identify the product or service you are offering.
As per Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017, entry no. 78, Services provided by an artist through performances in folk or classical art forms, including music, dance, or theatre are exempt from GST when the fee charged for such performance does not exceed ₹1,50,000. This exemption is not applicable to western, contemporary art forms be it music or dance nor if the artist is acting as a brand ambassador, so that basically rules out most modern day artists. Most Modern day artists would be charging 18% GST.
Speak to your Chartered Accountant (CA) for a better understanding and to stay compliant.
In Conclusion
Navigating taxation for artists and creative professionals in India requires a comprehensive understanding of both direct and indirect tax structures. From IT considerations, including freelance income, royalties, and tax deductions, to navigating the complexities of GST on goods and services, staying informed and compliant is paramount.
Proper record-keeping, accurate reporting, and compliance with the laws are essential for artists and creative professionals to optimise their financial management and minimise tax liabilities. Consulting with experienced professionals or chartered accountants specialising in financial management for creative fields can provide invaluable guidance and support in navigating the intricacies of taxation, allowing artists to focus on their creative endeavours while managing their tax obligations effectively.
