With effect from 1st July 2022, a new Income Tax provision demands that a 10-pc tax is deducted at source (TDS) on freebies/free samples exceeding Rs.20,000 in a year given by brands to social media influencers and doctors for promotions.
Medianews4u.com spoke with industry practitioners to understand how the introduction of this new provision of TDS on gifts sent by brands will impact social media influencers.
According to Pranav Panpalia, Founder, OpraahFx, an Influencer Marketing, Talent Management, and Gaming Agency based in New Delhi, the new provision is a wake-up call for creators and agencies who have been very actively working via barter deals.
He explains, “While barter may be a good way to pay in kind, it definitely doesn’t help creators pay their bills. It is usually the micro-creators who may have to face this blow, but at the end of the day, this regulation was needed. Cash or not, an earning via any mode is an earning and one has to pay tax on it. However, it would be fair if brands covered the 10pc TDS bit.”
He adds that brands will have to now show all barter deals in their records and file TDS against creators, making things more transparent.
Rajni Daswani, Director – Digital Marketing, SoCheers, believes that the new rule will allow for a more respectful and understanding relationship to be fostered between the brands and the influencers.
She adds, “In the realm of influencer marketing, free goodies sent to the influencers indeed generate substantial PR for the brand. But they’re also a little one-sided, with the influencers having less to no say in whether they would be interested in receiving the freebies. So, by making the process selective rather than generic, it is also an opportunity to curb the cost to the environment and reduce waste. It will now require a two-way conversation when it comes to sending free packages, where both parties can agree from the very beginning. This will also lead to setting more clear expectations between the two. Moreover, this rule is an indication of how big influencer marketing has gotten lately as an industry, and that newer systems are needed to better streamline it. This is quite an incentive for aspiring influencers. There are, however, still a lot of intricacies to be figured out in terms of the legalities involved and how exactly it’ll function.”
According to Sanober Surani, Co-Founder & Marketing Head, Budding Influencers, the new provision is a bold decision that has its pros and cons. She believes this scheme will be responsible for de-cluttering the social media space, making influencers more reliable.
She explains, “The people who are most affected by this rule are micro-influencers (following from 1k to 50k) because they are the ones who mostly work on barter and will be affected most by the TDS on any product. This has a pro side too. First and foremost, it throws a spotlight on influencer marketing and gives content creation the recognition that it deserves and needs, indicative of the increase in the demand for influencers and this type of marketing; Secondly, the influencers will be compelled to make their collaborative decisions more consciously, since they wouldn’t do any product endorsement just for the sake of it and purely out of their own interests and beliefs. “
“Majorly it is the micro influencers that work on multiple barter deals worth above Rs 20,000 in a year. Brands send them samples of their products as a gift, and the influencers showcase them on their social media channels. If this starts entailing TDS, then it will impact this bracket of influencers. Influencers with a large following are used to getting bigger ticket cash projects, so they are used to the standard taxation methods,” observes Amev Burman, Founder of influencer marketing platform, Adfluence Hub.
“Such a provision is bound to affect the earnings of the influencers largely because a lot of collaborations are barter and sampling-based. The grey area might make some influencers hesitant about such collaborations altogether. While an exact percentage or figure of the impact will remain unknown till better research is executed after the enforcement of the policy, one can say the impact might disrupt the engagement of influencers with such collaborations intensely,” says Ishan Jindal, Founder & CEO, Wobb.
Ankita Chauhan, Director Strategy, Tonic Worldwide, has a different opinion.
She believes that the implication of taxes on the freebies received by the influencers should not have a major on-ground impact.
She continues, “As social media and related businesses continue to grow, the changes in the regulations and policies are going to be inevitable. But of course, all the parties – brands, agencies and influencers will have to be mindful of this amendment. Steps like these are only going to help make the business more accountable and structured. Since this is only applicable to certain business sizes and values, it should not disincentivise anyone. Just like the past regulations of declaration of sponsored content, this too will become a part of the working process between the parties.”
How will the government monitor freebies? Is it enforceable?
Rohit Agarwal, Founder & Director, Alpha Zegus, says, “I get why this move is being taken. However, it’s going to be extremely difficult to implement it. The guideline requires people who are benefiting from sales promotions to ‘report’ the same in their tax returns and pay 10pc TDS.”
He explains: “Problem 1: How do you ensure that everyone reports every freebie that they have received? There’s no transaction number, there is no physical or electronic evidence of the transaction. Problem 2: Many social media influencers are young, and receive products from various brands quite regularly. Some of them don’t even fall under the taxable age, while some don’t have the funds to pay TDS out of their pockets (since the product does not have a liquid monetary value). If the product costs Rs 10,000, then the influencer is expected to pay INR 1,000 out of their own pocket, which might be very inconvenient for rising creators. Problem 3: A lot of electronic gadgets (and similar products) have a certain MRP, but are actually sold at a much lower value than the MRP. Is the influencer expected to pay 10pc TDS on the MRP, or on the in-store value? All in all, the move is understandable but comes with a lot of challenges in terms of opportunities and execution.”
Business as usual?
“Influencer collaboration needs more transparency. Platforms that make the process more transparent and take care of due diligence are needed by the hour,” says Burman.
“The new policy, which is formed as a regulatory framework to expand the tax base, immensely affects this system. The responsibilities of the influencers become a lot more complicated as they are expected to pay an advance tax and use a copy of the tax payment made and a declaration to prove that the tax for the benefit received has been paid. The said information needs to be reported in the TDS return by the influencer. Alternatively, the brand which is providing the benefit to the creators can deduct the taxable value and pay to the government, but this will also be considered a benefit, so the amount payable will change after grossing the taxable value. Due to currently growing demand and limited supply, brands are likely to pay the additional TDS cost as an amount on behalf of influencers who would be reluctant otherwise to participate. A provision is made available as per the regulation and it will be business as usual other than the fact that it got 10pc more expensive. The rest, as long as the market is open, supply and demand shall dictate the pricing and reach equilibrium,” says Jindal.
Animesh Agarwal, Founder and CEO at 8bit Creatives, believes that this move is also one of the first few official recognitions of the creator economy by the tax department, which is important for any industry to grow.
“First of all, I want to state that this is an understandable move from CBDT. Given that influencers receive the products, in exchange for providing the promotional service, it is income for them, and liable to tax, as per the fundamental principles of income tax. Even though it would lead to increased taxation for creators, I believe that the guideline is grounded in logic. Creators are entrepreneurs in their own right and we would be proud to be some of India’s bigger taxpayers, and contribute to the economy. From an income tax point of view also, accounting for the income is not a shocking decision and won’t prevent influencers from really endorsing things they believe in. Additionally, businesses that offer these freebies already deduct them as a business expense, which is another justification for taxing the recipient. The 20K threshold is a welcome exception because it spares smaller creators and numerous modest home brands the hassle. Additionally, this TDS is not applicable in the case of returnable products, which is also logical. All in all, I feel the move is an indication of how bullish the government is on the creator economy, and how far we have come,” he says.