Taxation Guidelines for Indian Authors Earning Royalty Income from Amazon KDP in India

An Overview

Welcome to our comprehensive guide on understanding the taxation rules for Indian authors earning royalty income from Kindle Direct Publishing (KDP) on Amazon. In this article, we will precisely explain how tax laws in India and the USA apply to your earnings from Amazon KDP.

Understanding Taxation for Indian Authors

Taxation in the USA

Since Amazon KDP is a US-registered company, any income earned from them is considered a US income source. Consequently, you are required to pay taxes on your royalty income to the US government. Amazon KDP withholds taxes at a default rate of 30%, which can be reduced to 15% under specific circumstances.

Taxation in India

As an Indian resident author, the royalties you receive from Amazon KDP are taxable in India according to the country’s tax laws. However, the taxability of foreign income in India depends on your residential status. The following are the different categories:

• Resident and Ordinarily Resident (ROR): As an ROR in India, your global income, including foreign-sourced income such as royalties from Amazon KDP, is taxable.
• Resident but Not Ordinarily Resident (RNOR): As an RNOR, India taxes income accrued or received in India, along with foreign income if it is derived from a business controlled or a profession set up in India.
• Non-Resident (NR): If you are an NR, India only taxes income accrued or received within India.

If you qualify as an ROR, your royalty income from Amazon KDP is taxable in India. However, you can also benefit from a deduction of up to INR 3 lakh under Section 80QQB of the Act.

Grasping Withholding Tax (TDS)

Withholding tax, commonly known as Tax Deducted at Source (TDS), requires Amazon KDP to deduct a specific amount from your royalty income and remit it to the US Revenue Authorities. By default, the withholding tax rate for US non-residents is 30%. However, the India-USA Double Taxation Avoidance Agreement (DTAA) provides a reduced rate of 15% for Indian authors. To avail of this reduced rate, you need to follow specific steps.

Preventing Double Taxation

As an ROR in India, it is important to note that your royalty income is subject to taxation in both the USA and India, potentially leading to double taxation. To avoid this situation, India and the USA have signed a DTAA, which is a tax treaty aimed at helping taxpayers prevent the payment of taxes on the same income twice. The DTAA determines which country has the right to tax the income.

Under Article 4 of the India-USA DTAA, individuals qualifying as residents of India are eligible for a reduced tax rate of 15% in the USA. To claim this benefit, you need to provide a declaration in Form W-8BEN / W-8BEN-E to Amazon KDP.

Case Study: Calculating and Crediting Tax

Let’s consider a hypothetical scenario. Suppose you earn a gross income of USD 100 from Amazon KDP, and Amazon KDP deducts USD 30 as tax. The net amount you receive is USD 70. In India, your taxable income will be USD 100, as the taxes deducted in the USA cannot be claimed as expenses.

According to Rule 115 of the Income-tax Rules, 1962, the exchange rate issued by the State Bank of India for March 31 of the Financial Year is used to convert USD income into INR. As an ROR, your royalty income will be taxable in India, and you can claim credits for the taxes paid in the USA. To claim the credit, you need to file Form 67 with the India Income Tax Department along with your Income Tax Return.

In Conclusion

Understanding the taxation rules regarding royalty income earned from Amazon KDP is crucial for Indian authors. By adhering to tax laws in both the USA and India, you can avoid double taxation and ensure accurate reporting of your income. Remember to file Form W-8BEN to benefit from the reduced withholding tax rate, and consult a tax professional for personalized guidance.

We sincerely hope that this article has provided you with clarity regarding the taxation of royalty income from Amazon KDP in India. Should you have any feedback or require analysis on other related topics, please feel free to reach out to us.