- Date : 20/07/2022
- Read: 3 mins
The new income tax rules will improve synergy between influencers and brands, as well as bring in better structure and transparency.
Over the last couple of years, influencer marketing has emerged as the biggest catalyst for digital promotions. What brands and businesses are calling a 'social first' initiative to promote their goods and services has given prominence to scores of social media influencers across platforms such as Instagram, TikTok, Twitch, etc. If you are an influencer or aspire to be one, you need to be aware of some changes to the Indian income tax rules that could impact you.
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Classification of benefits
As an influencer, you may receive a payment for promoting a business or product. This remuneration is added to your annual income for tax purposes. Nothing new here. However, if you are receiving any benefit in kind, such as the product itself or any other non-cash incentive, there will be tax deducted at source (TDS) at 10% of the fair market value of said product or benefit, as per the new amendments to the Finance Act 2022. This rule has come into effect starting 1 July 2022.
So, if you are a technology influencer getting to keep a gadget after review, a fashion influencer receiving apparel or a travel influencer benefiting from a complimentary stay with a hospitality brand, you will have to bear tax as per the new TDS rules. However, no tax will be applied if the product is returned to the business after promotions.
Change for the good
While on the face of it, influencers may see this as a liability. However, experts opine that over the long term, it would help influencers build better credibility. At the moment, consumers find that influencers have no brand loyalty and tend to push any product that comes their way.
As per an ‘influence.co’ research, 61% of respondents felt that influencers need to take greater accountability for the products they recommend. While brand collaborations also depend on a judgement call, a tax component on freebies will make influencers think hard about new partnerships as they will now come at a cost to them.
This works other way round as well. Most collaborations with smaller influencers work on barter for content promotion. With the new tax rules on merchandise, businesses too will scrutinise partnerships rather than sending freebies to everyone.
Some influencers have welcomed the move, stating this shows a positive shift in the government’s perspective regarding new-age freelancers and content creators. They feel it will improve synergy between influencers and brands and bring in better structure and transparency.