‘Influencer tax’ fallout: What will change?
Under the new tax rules, social media influencers will be required to pay a 10% tax deducted at source (TDS) on freebies and perks worth above ₹20,000, received from businesses for sales promotion, effective July 1
Under the new tax rules, social media influencers will be required to pay a 10% tax deducted at source (TDS) on freebies and perks worth above ₹20,000, received from businesses for sales promotion, effective July 1. This could include free air tickets, mobile phones, hotel stays, luxury products, and other free gifts or services, as per Section 194R, a recent addition to the Income-tax Act. However, they will be exempted from the tax if they return the product to the respective brands.
The impact of these revised rules is being felt differently across the board. Some, especially nano influencers with followers between 100 to 10,000, feel this will affect their brand collabs as they will not be able to afford the products and barter deals will no longer be as viable. Others, on the other hand, are of the opinion that this would not have any severe implications on their work. But, regardless of the group they fall in, influencers believe this move certainly reflects a positive change in the overall mindset towards their profession.
Calling this a “judicious step”, content creator duo Dhruv & Shyam says, “Taxation signifies that governmental perception about content creation is changing for the better.”
Moreover, these changes are a natural result of the boom in the influencer marketing business model, says digital creator Aastha Shah. “I feel this is just the start and more is yet to come because influencer marketing is the next big thing. Being social media influencers, many of us are used to perks. With this, I think, we will have to think twice before accepting any collaborations,” says Shah.
This also works the other way around, with brands scrutinising profiles of influencers before offering to collaborate with them. Shah adds, “Now, companies will analyse a lot before shortlisting the influencers they want to work with, instead of sending freebies to everyone.”
Small businesses and brands generally rely on barter deals, which involve an exchange of freebies for content. But now, influencers will tend to ask for payment, making it difficult for these brands to market their products. Digital creator Prableen Kaur Bhomrah, who has always supported local businesses, says her work strategy will have to change now. “Supporting these brands and sharing their products with my follower community has been very important to me. But, with the additional TDS, I’m afraid it won’t be easy for them to do a barter collaboration,” she says.
Further, the implications of these rules will vary based on the follower count of an influencer, affecting nano influencers more. “Macro influencers (with more than 100k followers) already pay the relevant tax for their earnings from big and compelling brand collaborations. But nano influencers will not be able to afford these, since most of the collaborations they do are on a barter basis,” adds Bhomrah.
Some influencers laud the move as they believe it will create more transparency and reduce wastage. “It not only displays a positive shift in the government’s perspective on creators, it will also contribute to reduction of wastage since collaborations are bound to be more precise now”, says Nagma Mirajkar .
“The TDS is specific to freebies retained after a collaborative exercise with a brand, so it is a very well thought out move. I don’t think this changes the syntax of brand collabs, but it will make the process more transparent,” says content creator Unnati Malharkar.