- Are you aware of how your income from Amazon KDP is taxed in the USA and India?
- Do you know what you should do to follow the tax laws of both countries?
- How to safeguard yourself from any risk of penalty or prosecution of wrong tax filing for Amazon KDP?
This article is crafted for Indian Netizens who are earning royalty income via Amazon KDP.
By the time you will reach the end of this article, you will have answers to the above questions and would be better aware of your compliance responsibilities.
What is Amazon KDP?
Kindle Direct Publishing (KDP) is Amazon’s e-book publishing unit launched in November 2007, simultaneously with the Amazon Kindle device. Originally called Digital Text Platform, KDP is used by authors and publishers, to independently publish their books directly to the Kindle Store.
Amazon sells these books in Kindle and paperback formats and in return pays the author a sum of royalty for using the author’s copyright on the book.
What is the nature of income earned from Amazon KDP?
The amount paid in exchange for use of someone’s copyright may be termed as royalty income.
- Compensation paid by a book publisher to the author of the book for using his copyright over a text,
- Compensation paid by a distributor to the singer for using his copyright over a song, etc.
Royalty income differs from the affiliate income (affiliate marketing commissions) earned from partners (such as Bluehost.com, SEMrush.com). For more information on affiliate income, please refer to what is affiliate marketing.
Where Amazon KDP income will be taxable?
Suppose an Indian author earns Royalty Income from Amazon KDP (which is a company registered in the USA). So, the question arises whether this Royalty Income would be taxable in India or in the USA?
While finding out the answer to the above question, you should first know that any country has a right to tax an income because of the following:
- Either source of your income is in that country,
- Or you are a resident of that country
In the USA
As the Royalty Income is earned from a US registered company, the source of income lies with the USA. Thus, this income is taxable in the USA basis source taxation as per the US Tax Laws.
Further, the Amazon KDP would need to withhold taxes @ 30%. But this withholding tax rate can be reduced to 15%. We will come back to it in a bit.
As the author is a resident of India, Royalty Income earned by him from within India or outside India should be taxable in India basis resident taxation as per India Tax Laws.
Taxability of foreign income in India depends on your residential status in India. Residential status in India can be categorised as follows:
- Resident and Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
- Non-Resident (NR)
|Whether this Royalty Income (foreign-sourced income) is taxable in India?||Yes||No||No|
|Whether the benefit of taxes paid in the USA available in India?||Yes||No||No|
Thus, if you qualify as a ROR in India, India has a right to tax your global income, which includes your foreign-sourced income. Hence, this Royalty Income is taxable in India if you are a ROR individual.
Further, as an Indian resident author, you may also take benefit of deduction (up to INR 3 Lakh) available under Section 80QQB of the Act.
Is it getting complex? Hang on!
Let me simplify this for you…
What is Withholding Tax?
Withholding tax is also known as Tax Deducted at Source (TDS). As per the US Tax Laws, a payer of income (Amazon KDP) is required to deduct an amount from remittance made to the payee and deposit the same with the US Revenue Authorities.
In case of Royalty income is paid to a US Non-Resident, the rate of withholding tax is 30%. Further, the India-USA Double Taxation Avoidance Agreement (DTAA) provides a beneficial rate of withholding of 15%. So, an Indian author can take benefit of reduced rate of withholding after following some steps which we will discuss below shortly.
What is a DTAA?
If you qualify as an ROR in India, your Royalty Income is taxable in the USA and India. This leads to double taxation of the said income. To avoid such a situation, India and the USA have a DTAA.
DTAA is a tax treaty signed between 2 or more countries to help taxpayers to avoid double taxes on the same income. It determines the rights of countries to tax an income.
India has signed DTAAs with various countries.
Article 4 of India – USA DTAA defines a Resident (ROR as per India Tax Laws). As per Article 12(2) of the DTAA, an individual who qualifies as a Resident of India (as per Article 4) is eligible for a reduced rate of tax in the USA (i.e. 15%).
To claim the benefit of the reduced tax rate in the USA, you need to furnish a declaration in Form W-8BEN / W-8BEN-E to the payer i.e. Amazon KDP in this case.
Is it getting too technical? Don’t worry, to make it simple for yourself, check out the case study at the end of this article.
How Amazon KDP tax will be computed in India?
What is the amount of income to be taxed in India (Gross Income / Net Income)?
Suppose gross income is USD 100 out of which Amazon KDP deducted USD 30 as tax. The net amount paid is USD 70. So, whether taxable income in India is USD 70 or USD 100?
Please note that taxes deducted in the USA is not an expense and thus deduction of the same will not be allowed. In India Gross Income earned from royalty will be taxable i.e. USD 100.
As per Rule 115 of the Income-tax Rules, 1962, to convert the USD income into INR, the exchange rate issued by State Bank of India for 31 March of the Financial Year would be used.
Foreign Tax Credit
As per Article 25 of the DTAA, if an income is doubly taxed in the USA and India, then the resident country (i.e. India in this case) will give credit of taxes paid in the USA.
Therefore, if you qualify as an ROR in India, the Royalty Income will be taxable in India, and credit of taxes paid in the USA will also be available.
To claim credit of taxes paid in the USA, you need to file a Form 67 with the India Income Tax Department along with the Income Tax Return.
What you need to do?
In the USA
You need to file Form W-8 BEN as mentioned above to get the benefit of a reduced rate of withholding tax of 15%. For more details, refer to our article Guide to Form W-8BEN. (Coming soon)
You need to do the following:
- File Form 67 as mentioned above
- Deposit taxes in India
- File Income Tax Return in India
|Particulars||Case 1||Case 2||Case 3|
|Residential status in the USA||Non-Resident||Non-Resident||Non-Resident|
|Residential Status in India||ROR||RNOR||NR|
|Whether the income is taxable in the USA||Yes||Yes||Yes|
|Rate of tax in the USA||30%|
(15% if Form W-8BEN is furnished to the payer)
|Whether this income is taxable in India||Yes||No||No|
|Whether the benefit of taxes paid in the USA available in India||Yes||No||No|
Amazon Tax Central:
You can download tax files related to your Amazon royalty income from Amazon tax central.
The purpose of this article is to make you more tax compliant. We hope that we were able to bring more clarity on the issue and identify your action points. Please let us know your feedback on the above and if there are any other related topics that you would like us to analyse.
- The taxability of this royalty income and related tax filing requirements in the USA may need to be analysed separately.
- The credit of taxes paid in the USA is available in India to the extent of actual tax liability in the USA. If some amount is refunded back to you by US revenue authorities, credit of the same is not available in India.
- In case you qualify as a Resident of the USA, the above analysis is not applicable to you.
- The above article only deals with income in the nature of royalty and does not cover any affiliate income.
- The above article is for information only, please check with your tax consultant before taking any decision basis above. The author or publisher of this article will not be responsible in any manner in case of any loss in any form is incurred by any individual or any organisation basis above information.
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