The Buyt Desk
As per the Union Budget 2022-23, 10% TDS will be applicable for individuals who get benefits or perquisite over Rs 20000/- per annum from their business or profession.
In India, Influencers usually follow a barter system with the brands. This means the influencer receives products for free and some freebies, and in return, the influencer endorses the product without taking any money. In the latest budget of 2022-23, there is a provision where a person is charged 10% TDS on the freebies that he /she receives from the business or profession when it exceeds Rs 20000 per annum. The freebie can be any benefit or perquisite including brand products, air tickets, hotel stay, sample medicines, sample cosmetics, electronic gadgets, clothes and gift vouchers.
From now on, influencers must disclose all the free things that they receive from brands in return for the endorsements they do. TDS is applicable only when they retain the products. If the products are returned after advertisement, TDS is not applicable. So now while filing income tax returns, every free thing should be disclosed so that TDS can be claimed. This call was taken to widen the tax base. People considered only cash payments as income as freebies were not shown in the earnings. Now all free samples need to be declared as income while filing income tax returns.
What is barter collaboration?
The content creators and influencers get free samples or gifts from brands as a goodwill gesture in return for a post or review on social media. Now, these gifts should be shown in the books as promotional income by influencers. Also the same should be shown in books of brands as a promotional expenditure. The influencers accept free samples and endorse them, by doing so they are extending the service of marketing to the brand. These transactions may now reduce as there is a lack of clarity about TDS in barter collaboration.
What is the new TDS rule under Section 194R?
The Central Board of Direct Taxes (CBDT) has made a new rule on TDS on benefits or perquisites. As per this rule if an individual is offering a benefit in kind to a beneficiary then tax should be deducted at the source under Section 194R, the individual has to monitor the tax that is deducted is paid by the beneficiary. Under the new rule, influencers need to file advance tax when the value of the gifts they get is beyond Rs 20,000 per annum.
How will the new TDS rule impact Influencers?
Influencers who will be majorly impacted are micro-influencers, one who has 100,000 to a million followers. Barter association is their only way of the transaction until they build more followers and have set up their name in the field of influencers. Next will be tech influencers, who review gadgets and get that gadget as a gift. Then it is travel influencers, who promote places in exchange for flight tickets, hotel stays or free food. Now all need to keep track of all transactions in detail. Now doing promotion business will not be easy for influencers. The new rule was not made to ease doing business but to keep track of all transactions and widen the tax base.
Is the new rule validation for influencers?
An influencer is a new sector and it is still unorganized. Not many influencers are under the tax umbrella. The government has recognized this new breed of professionals and made new rules for them. This is the validation for the recognition of a new profession. For all barter collaborations done by creators and agencies, this new rule is a wake-up call. This is not a good way to monetize as you cannot pay bills with freebies. Cash flow is very important.
Will it impact earnings and brand deals?
Definitely, there will be a decline in barter collaboration. The financial implication may not be more due to the new tax rule. Influencers’ earnings may not be affected but will be a little complicated till all understand the new rule better. Many influencers may be hesitant about barter collaboration in future as there is no clarity about new rules to many.
