Are you aware, as an online course creator, you could be paying more taxes than necessary? Let us help you with the best tips on how to save tax on income from online courses in India.
Learn all about the various benefits and deductions you can avail as a seller to take advantage of these benefits and keep more of your hard-earned money.
Taxation of Sale of Online Courses in India
Online course selling is booming in India. But with any kind of sales, there comes specific tax implications. Let’s understand these before we delve into how to save tax on income from online courses in India:
Understanding Taxable Income from Online Courses
Income earned from selling online courses is categorized as Profits and Gains from Business or Profession (PGBP) under the Income Tax Act.
This classification is applicable to individuals as well as entities offering educational services through digital platforms.
Taxable income constitutes:
- Direct Sales: Revenue earned from selling courses on your own platform/ website.
- Platform Earnings: Income generated through third-party platforms like Udemy, Skillshare, or Teachable.
- Subscription Income: Revenue from memberships or recurring payments for access to your courses.
- Affiliate Income: Commissions earned by promoting others’ courses as part of your offering.
- Miscellaneous Earnings: Income from additional services like consulting or mentoring related to the courses.
Applicable Taxes and Taxation Framework
Income Tax
Income from online courses is subject to Income Tax based on the applicable slab rates for individuals or businesses.
The income is taxed progressively, running from 5-30% of your total income.
GST (Goods and Services Tax)
The sale of online courses is treated as a supply of services under GST. The standard rate for online educational services is 18%.
If your annual sales exceed INR 20 lakh ( or INR 10 lakh for special category states) you must register for GST.
Tax Deducted at Source (TDS)
If you sell courses through platforms like Udemy, Coursera or Skillshare, they may deduct TDS before transferring payments to you.
Ensure to collect TDS certificates for accurate income reporting and to claim credit when filing returns.
International Sales and Foreign Exchange Earnings
Income earned from international students is subject to taxation in India.
GST on export of services is exempt, provided the required conditions are met, such as receiving payment in convertible foreign exchange.
Revenue Recognition:
Income is recognized when the course is sold, irrespective of when payment is received. This includes fees from course sales, subscriptions, and any additional services offered alongside the courses.
Filing Requirements:
Online course providers must file their income tax returns annually and comply with GST return filing requirements based on their turnover.
How to Save Tax on Income From Online Courses in India: 15 Tax-Saving Strategies
To optimize your tax liability as an online course creator in India, here are all the strategies you can leverage:
1.
Claim Business Expense Deductions:
Deduct all expenses directly related to your course creation and marketing activities, such as:
- Home office deductions
- Rental space office cost
- marketing costs
- software subscriptions
- website maintenance
- software and hosting platform fees
- internet and utility costs
- website maintenance
- travel, and professional services, etc.
Keep detailed records to help substantiate these deductions during tax filing.
2.
Consider Structuring Your Services As a Business:
Incorporating as an LLP or partnership can offer better tax optimization and lower compliance costs compared to running as an individual.
LLPs are taxed at a flat 30%, which might be lower than personal income tax rates for higher-income individuals.
It also allows for better expense management compared to individual taxation.
3.
Opt for the Presumptive Taxation Scheme:
If your gross receipts from selling the course are under INR 2 crore, consider opting for the presumptive taxation scheme under Section 44ADA or (for professionals) or Section 44AD (for small businesses).
This section allows you to declare 50% of your income as expenses, simplifying tax calculations.
4.
Optimize GST Compliance:
Register for GST if turnover exceeds INR 20 lakh. This is needed for more than just compliance.
Complying with GST regulations allows you to claim input tax credits on business-related purchases, effectively reducing your overall tax liability.
5.
Utilize Tax-Free Exports for International Sales:
If you sell online courses internationally, it can be classified as an export of services, which is exempt from GST if conditions are met.
Make sure you are compliant with foreign exchange regulations and keep documentation for zero-rated GST claims.
6.
Consider Professional Tax Planning:
If you have substantial earnings from selling your income, consider opting for professional tax planning with experienced firms like PKC Management Consulting.
They will customize your tax strategy in a way that maximizes deductions and credits while ensuring compliance with current tax laws.
7.
Utilize Tax Credits:
Take advantage of available tax credits that can directly reduce your tax liability.
For example if you are selling your course through platforms like Udemy or Coursera, TDS is collected.
You can also avail International tax credits under Double Tax Avoidance Agreements (DTAA) if you have foreign income.
8.
Invest in Skill Development:
Expenses you incur for learning or improving skills (e.g., purchasing online courses or certifications) can be claimed as a business expense if they directly relate to your field of work.
This strategy allows you to reduce taxable income while also improving your expertise.
9.
Investment-Linked Tax Saving:
If you are choosing the old tax regime, you can also deduct investments in tax-saving instruments under Section 80C:
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Equity-Linked Savings Schemes (ELSS)
10.
Plan for Retirement with NPS:
Contributing to the NPS not only helps secure your retirement but also provides an additional deduction.
You can claim a deduction of up to INR 50,000 under Section 80CCD(1B), beyond the INR1.5 lakh limit of Section 80C.
This benefit however, is only available in the old tax regime.
11.
Use Accelerated Depreciation on Assets:
Assets like laptops, cameras, and office furniture can qualify for higher depreciation rates in the initial years.
This reduces taxable income significantly in the first few years of purchase.
12.
Plan Capital Expenditure at Year-End:
You can time purchases of major equipment (cameras, computers) toward the financial year’s end.
This can help you claim partial depreciation in the same year and full depreciation in the next year.
13.
Split Income:
If applicable, split income with family members who fall under lower tax brackets by involving them in the business operations.
This strategy ensures family members utilize their basic exemption limits or lower tax slabs.
14.
Utilize HUF Structure:
Consider forming a Hindu Undivided Family (HUF) structure if eligible.
This can help segregate income and avail additional exemptions and deductions available to HUFs if you are choosing the old tax regime for filing ITR.
15.
Invest in Tax-Free Instruments:
Explore investing in tax-free instruments such as certain bonds or fixed deposits that provide returns without attracting income tax, thereby preserving more of your earnings.
This again is a deduction available on the old tax regime.
Frequently Asked Questions
- What types of income are taxable when selling online courses?
Income from selling online courses, including course fees, subscription charges, and any related services, is considered taxable under the category of Profits and Gains from Business or Profession (PGBP).
- Can I claim deductions for expenses related to my online courses?
Yes, you can claim deductions for various business-related expenses, such as marketing costs, software subscriptions, website maintenance, and any other direct expenses incurred while creating and selling your courses.
- What is the GST rate applicable to online course sales?
The Goods and Services Tax (GST) rate for educational services, including online courses, is typically 18%. If your turnover exceeds INR 20 lakh, you must register for GST and comply with filing requirements.
- Are there any specific deductions available for home office expenses?
If you use a part of your home exclusively for business purposes, you may claim a deduction for a portion of home-related expenses (like electricity and internet) based on the area used for business activities.
- What are some unique strategies to save tax on online course income?
Unique strategies include utilizing HUF structures for additional exemptions, investing in skill development programs that qualify for deductions, and exploring tax-free exports if you sell courses internationally.
