Useful and Important Tips for saving tax on AdSense or advertising income

It is one of those bitter truths that blogging income is different by no means from any other income. You are required to honestly reveal your online income while filing your income tax returns and pay the tax amount according to the tax category you belong to. There are  lot of ways to reduce your tax burden like tax saver Life Insurance policies, tax saver fixed deposits offered by banks, giving charity/donations to registered NGOs/Charitable trusts/Orphanage Trusts having a verified registered No and PAN number, paying mortgage interests, participating in various other long term investment plans etc. DO NOT forget to demand/collect your receipt of the donation amount you make from these organizations. Because that is your first real evidence for save tax. Various well known tax saving tips are easily found over the web, but here we are trying discuss some of the concrete ideas and tips that can really help you in saving your income tax burden forever if you are a regular online blogger or ad publisher.

I. Indian citizens who pay tax regularly i.e. every Financial year, they are legally required to file their income tax returns. So, if you are a tax payer and your gross total income during the current financial year exceeds the basic exemption limit (Which is defined and revised by the government during the release of budget every year on 1^st of April). You must include your AdSense income and other online income in your tax returns under the head “Income from websites”. 

II. If you are a sincere and regular blogger and your monthly earning exceeds 100 US Dollars and if you are very confident that your online business will grow, I strongly urge to register it as a business. In the future days, you may not have to file tax returns and pay IT but still running your blog/website as a registered business will surely help you in maintaining a transparency and thus relieving your own liabilities.

III. If you are making healthy online income, then you must open a "current account" in your bank, most preferably in the name of your business i.e. the name of your website/blog. By using a current account, you are clarifying to the bank and other regulatory authorities/bodies that the income is from a running business. In that way, you can sideline a lot of unnecessary queries and questions from bank, Income Tax and enforcement departments.

IV. If you are Indian and earning your online income from abroad, then do get a Foreign Inward/Income remittance Certificate (FIRC) document for your online income before filing IT return.

V. There are simple ways to get tax deductions if you run your blog/website as a business.  You can make a lot of expenses associated with your business and collect bills/receipts in the name of your business. But if you buy in personal name, you may be interrogated by IT officials to explain. Sometimes, you may be required to include some of your expenses in your personal name only if you have a strong point/evidence to prove that they are business expenses. But if you have huge inflow of money, then making lot of transactions in your business name is wiser. 

VI. If you are running your online business from home, you can pay some rent to your parents or the house owner. The rent amount can be deducted from your income as indirect expense while filing the annual income tax returns and preparing balance sheet. Again, the rent you paid has to be included in the total income of your parents or the house owner. This increases their tax liabilities further.

VII. Besides the Government’s mandate of service tax on online advertising, particular category or group of incomes are eligible for service tax exemptions such as advertising income. If your CA/auditor classifies your income as advertising income, the of course you are not liable for paying service taxes for that portion of the income amount. Other ST free sources or categories are sponsored reviews, paid articles etc because these categories match no particular groups or brackets in annexure of Service tax. But do not forget that at any stage of choosing or altering your categorizations, you will have to pay income taxes. If you are receiving advertising income, the use purpose code P1007 in your current account in bank.

VIII. A clarification of point V above: inform your CA/auditor about the particular expenses your make in your business name like newspaper, electricity bill, internet bill, telephone bill, some office stationeries like paper, pen, chairs, gadgets, computers, tables etc. Calculate the exact amount and percentage of the expenses you want to claim as business tax deduction.

IX. If you are a review expert, then you can review many of your products you use in your office and publish them. Then show them as business expenses in your IT return. In that way, you save tax too.

 
X. Some minor entertainment expenses like guest/clients refreshments or buying some movie tickets for your blogger buddies during leisure from a long duration of work can also be included in business expenses.

XI. If you watch movies for the purpose of writing reviews only, then it will never be tagged under entertainment. It is pure business, your movie tickets are clearly business expenses. For tax exemption of the ticket amounts, your movie review articles must be published online/offline media. 

XII. Keep all the receipts and payment bills of all minor and major expenses ready for any suspicious visit of an Income Tax official.  Explain all these details to your auditors who files your IT return. Otherwise, you are sure to get an unfavorable notice from the income tax officials.

Final Words

All the tips I discussed above are from my hard earned study about the Income Tax Department of India and its rules. I am not a Tax advocate or lawyer who manages these things easily. Readers are requested to contact a professional and experienced CA or Tax Consultant in their regions if they find these tips unhelpful.