The Central Board of Direct Taxes’ (CBDT) plan to expand the government’s tax base might have a significant impact on social media influencers.
Under the new rule, which came into effect from July 1, social media influencers will have to pay 10% tax deducted at source (TDS) on freebies or any other form of payment made in kind, if the value of the product is above ₹20,000.
But first things first, this regulation also recognises the social media creator economy, which was much needed. The move will have a bunch of effects on the creator economy. Let’s take a look.
- Building trust – Creators will not do promotions for the sake of it and companies will not promote products for the sake of it. Both will have a genuine motive to see the benefits of the product. Creators will tend to use the product/service, know it inside out, and then capture it on their stories. This not just increases transparency and credibility but also build a relationship of trust between the audience and the creators, which is crucial for the long run.
- Big hit to specific niches – Any niche that has its brands spend more than 20k (which is the non-tax limit) will be affected. For example, travel, tech, or fashion. If a company sponsors a trip of a travel influencer for Rs 1 lakh, then the creator will have to pay 10% tax on that amount. Same goes with the goodies provided to lifestyle and fashion influencers. Even tech influencers often get freebies above Rs 20,000. Cameras, phones, laptops, be it any device, the influencers will now have to do proper due diligence of every product because why pay taxes on a product you don’t use/like at all?
- New gifting system is plausible – It has also been notified by the CBDT that no charges will be applied if the gifts are returned to the company after the purpose of sales promotion has been fulfilled. So, it is safe to say that creators might return the goods to the respective brand after the promotion is done. This obviously won’t be possible for travel or fashion influencers, but this is something plausible in the near future.
- Big hit to budding creators – This might have hit the budding creators the most. They will have to pay taxes on gifts above Rs 20,000, which might pinch their pockets a bit harder. But the brighter side of this is they can stride a fair deal with the brands by asking for a nominal fee to lift some tax burden for promoting their product.
- Negligible effect on infotainment creators – This might have little effect on the Finance or Business Info Influencers because they don’t get freebies or merchandise usually. That’s because most of their ads are based on commissions. They usually do not receive free tickets on IPL matches or trips for sales promotions for that matter. Also, usually the promotions finfluencers are taxed on source and they anyway have to pay TDS.
All in all, we might see an increase in credible promotions, which will build a strong relationship between the creators and the audience. But on the flip side, this move has officially recognised the existence of social media content creators, and thus a new industry in itself. This is a matter of honor if you see the bigger picture!
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)
