Government may tax Netflix on the income earned in India: Report

India is seeking to tax Netflix Inc’s income earned from streaming services in the country, according to media reports. The move is the first time India will tax overseas digital companies providing electronic commerce services to consumers.

India is seeking to tax Netflix Inc's income earned from streaming services in the country, according to media report on Friday, citing people familiar with the matter. According to a draft order, the tax authorities estimated that Netflix's Indian permanent establishment (PE) earned around 550 million rupees ($6.73 million) in revenue for the assessment year 2021–2022. 

It further said, tax authorities reasoned that the American company had infrastructure and certain workers from the parent organisation on secondment in India to support its streaming services, resulting in a PE and tax liability. The move is the first time India will tax overseas digital companies providing electronic commerce services to consumers, it added.

This is due to information from income tax authorities that the US-based entertainment company, one of the most well-known content streaming platforms worldwide, has a permanent establishment (PE) in India and is therefore subject to having the income it derives from the nation assessed for tax.

More than 6 million people in India are presently customers to Netflix, which launched its streaming services there in 2016. In a recent interview, Netflix India's vice president of content Monica Shergill stated that the country's total view hours increased by 30% year over year while income increased by 25% in FY21–22.

India is a crucial market for Netflix since in 2022 it added the most net new subscribers to its total worldwide subscriber base. Original Indian material, licenced films, and the introduction of a tough pricing strategy in December 2021 were the driving forces behind this.

If the tax department follows through with the plan, it would be the first time the government has ever considered taxing foreign digital enterprises that offered electronic commerce services to India.