How are royalties from book sales treated for income tax?

Can modest income/royalties received from an Indian publisher’s book sales be shown as other income on the ITR 1 form?

— Kapurash

It is assumed that you are a Resident and Ordinary Resident (ROR) of India.

Income/royalties from book sales can be categorized as income from other sources (IOS) or business and professional profits and gains (PGBP). Whether income should be shown under IOS or PGBP depends on various factors (eg volume, income, frequency, etc.) and the facts of each case.

In case you are primarily engaged in the business/profession of book authoring to earn royalties/advertising revenue etc., you may consider declaring it under PGBP, otherwise you may consider declaring it under IOS .

In accordance with the instructions issued for the ITR forms for the 2020-21 financial year, the ITR 1 form can be used for the filing of the income tax return (when the total income does not exceed 50 lakh) declaring income from salary, real estate and interest income/family pension/dividend taxable under IOS title. In addition, the form cannot be used to claim any deduction of expenses relating to income under the heading IOS (excluding family pension). Therefore, ITR 1 may not be the appropriate form to disclose royalties/advertising revenue under “income from other sources” and you can use ITR 2 to file the tax return. ITR 3 applies if revenues are disclosed under the PGBP.

To substantiate the statements regarding income, if required before the Indian tax authorities, the taxpayer can submit the agreement reached with the publisher, based on the calculation/reconciliation of income, agreement/confirmation of the publisher on the quantum, etc. ., as backup documents.

The deduction may be claimed for expenditures (not as capital expenditures) incurred wholly and exclusively to earn taxable income under IOS. Thus, you can deduct expenses wholly and exclusively incurred to earn royalty/advertising income, when calculating taxable income.

Deduction, under Article 80QQB (subject to a threshold limit of 3 lakh) can be considered if specified conditions are met (including obtaining a certificate on Form 10CCD from the Indian publisher).

Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG India.

To subscribe to Mint Bulletins

* Enter a valid email address

* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our app now!!