Taxation on Film Production
The film industry is one of the major industries providing entertainment to the Indian residents for many a year. It has also provided some of the finest arts and artists to the country by giving them immense opportunities and even taking them to an international level. Film Industry was given its standing as an “industry” back in 2000 and ever since there were various measures taken up by the government for liberalizing the regulations in the film production and financing of the same. And this industry and film production is having a more organized corporate-like structure currently where most of the producers are registered and functioning like corporate entities rather than individuals funding the movies and their production. Due to this, financial institutions and banks find it easier and more viable to fund or provide loans to such production houses when compared to prior times. The insurance companies also find it easy to provide covers to the films against any loss which might arise during the shooting of the film.
So, the producers are the ones who are majorly investing in the production of the films with the expectation of earning more returns. And this increases their tax liabilities as well. Hence, they are expected to do the following discussions made in this article:
Submissions to be made by Producers
– The producers of the films which are made in India, shall furnish a Statement of Income to the Income Tax Authorities in accordance with section 285B of the Income Tax Act.
– This shall include all the necessary details pertaining to payments in excess of INR 50,000 made or due from such producer to any person who is engaged by him in the production of the film in any role.
– As per Rule 121A of the Income Tax Rules the producer shall furnish such statement of income within 30 days from the closing of a financial year ruing which the production of such film was carried on or within 30 days from the date of completion of the film, whichever is earlier.
– The failure to comply with the same shall attract a penalty of INR 100 per day of default.
Deductions which are Permissible Film Production
The ascertaining of taxable income for a film producer is not easy, as the revenue starts accruing or coming only on the completion of the film production and releasing the same in theatre or the OTT platforms. And this might take almost 6 months to even 6 years, where we can see that most of the incomes will be generated during the initial period of release. So, writing off of expenses from such revenue is vital and should be understood well beforehand.
The cost involved in the production which was incurred for a feature film can be claimed as expense deduction under relevant rule which is Rule 9A of Income Tax Rules. And this rule i.e., 9A, also provides the meaning of the cost of production and it refers, to all expenditure made on the production of the film except that was expended on positive prints of the movie and in connection with the advertisement of such movie after it is certified for release by the concerned authority which is the Censor Board.
Remuneration if any paid in kind to the actors or such other members involved in the film shall also be included while computing the total cost of production.
But it is seen that producers at times receive subsidy payments from the government, this shall be allowed as a deduction at the time of computation and would be taxed as revenue receipts. This is made on the basis of the decision taken by the Supreme Court in the case of Sahney Steel & Press Work Ltd v. CIT, Hyderabad and the decision said that any subsidy received by an entity for assisting them in carrying trade or business shall be treated as revenue and taxable as revenue receipts. And if the producer incurs loss due to the production of the film, it can be deducted or claimed as business loss.
So, we can say that the entire cost of production incurred by the producer can be allowed as deduction while computing profits and gains earned from such products and this shall be allowed, if:
- The film is released and shown on a commercial basis by the producer(s) in some or all areas;
- The producer(s) sells the rights of the exhibition in some or all areas; or
- The producer(s) does both, and the film is announced and released for show on a commercial basis. And this is done 90 days before the end of such previous year.
If the film is not announced and released for being shown on a commercial basis prior to a period of 90 days of the end of the relevant financial or previous year, the cost of production will be allowed as a deduction while calculating the profits and gains or loss of the relevant financial or previous year. But the same shall be made available as long as such cost does not exceed the amount realized by the film producer(s) by exhibiting the film or selling the right that would allow exhibiting of the respective film on a commercial basis. In case there is any balance, it will be carried forward to the next previous year to be claimed as a deduction in that year.
And if the film is not exhibited on a commercial basis by the maker or producer of the same nor sold, then there shall not be any deduction allowed. Here, the entire cost will then be carried forward to the next following previous year and allowed as a deduction in such a year.
It should also be noted that the sale of rights of the exhibition also includes the lease of such rights or their transfer on a minimum guarantee basis.
And further to be noted that, the Income Tax Appellate Tribunal in Vieshesh Films Pvt. Ltd v. Deputy CIT, Mumbai, the order or the statement provided which was dated as August 27, 2008, held that since no mode of show or exhibition is specified under Rule 9A, an exhibition of films on television on a commercial basis will also fall within the scope of such rule.
Rule 9A does not hold any overriding effect on the other provisions of the Income Tax Act or Rules and should be noted that in case of any expense which cannot be claimed as deduction under Rule 9A shall be claimed under section 37 of the Income Tax Act. The film producer shall also make proper TDS (Tax Deducted at Source) deduction also from the payments made to actors, composers, directors, or such other personnel associated or engaged in the production or making of his film.
Now we can conclude that the film industry like any other industry is growing day by day and the people joining the same for producing films and reaping the large number of profits are also increasing. Hence, it is important that the same is understood and complied with for putting at bay any complications which might arise.
