Are subscriptions to OTT platforms tax deductible?

While the primary purpose of these platforms is personal entertainment, a question may arise as to whether these business expenses can be claimed as a deductible expenditure?

What are the criteria for the deduction of expenses?

Section 37 of the Income Tax Act, 1961 (ITA), deals with the deduction of general expenses. As per this section, any expenditure incurred wholly and exclusively for the purpose of business or profession should be allowed as a deduction in the computation of taxable income from business or profession.

In other words, as per section 37 of ITA, any expense which is capital or personal in nature is not allowed as a deduction. Thus, whether an expense is a capital or personal in nature must be analysed based on the facts of the taxpayer. For example, say you manage a social media page and you get paid to review the content on OTT platforms, expenses incurred for the subscription of OTT may qualify as a deduction for computation of taxable income. Not only that, if you are using OTT platforms for recreational breaks for your employees during business hours, such expense also should qualify as a business expenditure. One can argue that this expenses is in the nature of staff welfare expense/staff entertainement expenses which is an integral part of business and thus wholly and exclusively for the purpose of business.

What proof is required for the deduction of these expenses?

The onus to establish a nexus between business and subscription charges lies with the taxpayer. The invoice for such payments should be in the name of the assessee and the payment for the subscription should be made from the bank account maintained for the business.

How much cost is deductible in a year?

There is no restriction or limit on the amount of OTT subscribtion expenses that may be allowed. Provided the subscribtion expenses is incurred wholly and exclusively for the purpose of business or profession, the acutal amount spent for such subctibtion wold be allowed. Further, deduction is allowed only for expenses incurred for the year. For example, if you start your subscription in June and subscribe to an annual fee, deduction in the year of subscription will only be allowed for the period of ten months. The remaining amount pertaining to the two months will be allowable in the subsequent year.

Why such deduction may be subject to litigation?

OTT platforms are primarily considered to be for personal entertainment. There is no specific guideline provided under the ITA for the allowability of deduction. What qualifies as a personal expense or a business expenses has always been subject to litigation. There are many such instances where deductibility of expenses under section 37 on the grounds of personal vs business has been the subject matter of many litigations for eg foreign travel, club expenses, education expenses, guest house etc.

As discussed earlier, the onus is on the taxpayer to establish nexus between their business and the subscription charges. The taxpayer needs to prove that the subscription is beneficial or integral for their business. Further, the deductibility of subscription charges for OTT platforms would depend on taxpayer, and the tax department may take contradictory positions on case to case basis.

Neeraj Agarwala is partner at Nangia Andersen India. Neetu Brahma, manager, Nangia Andersen India, contributed to this article.