Taxation of Social Media Influencers

Current Context

Social media influencers are individuals who are engaged online in building a community platform via social media channels like Instagram, Facebook, Youtube, TikTok and many others. During the 2020 Covid pandemic, there was an exponential increase in the number of influencers and content creators surfacing on these platforms. They were seen garnering a huge number of followers and brand partnerships. 

With TV advertising  decreasing and companies wanting to increase their digital brand awareness,  brands nowadays reach out to influencers for promotions. Typically influencers receive freebies consisting of branded products as “PR packages”or affiliate coupon codes (customised with the influencer’s name) in exchange for the influencer promoting the brand’s product on their social platforms. This is referred to as a“Barter Collaboration” wherein an influencer receives a PR package and in return tries out the product or service and reviews it for the public. There is no money involved in this entire process.

New Development 

Section 194R of Income Tax Act, 1961 : Deduction of tax on benefit or perquisite in respect of business or profession.

194R. (1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall ensure that tax has been deducted in respect of such benefit or perquisite at the rate of 10% of the total value of such benefit or perquisite before providing the benefit or perquisite to such resident:

Applicability of the section : 

If the total value of such benefit or perquisite is more than INR 20,000/- in a F.Y.

If the Individual/HUF receiving such benefit or perquisite has total sales/receipts/turnover of less than INR 1crore (business) or INR 50 lacs (profession) in a F.Y

This section was inserted in the Finance Act, 2022 and shall be effective from July 1, 2022.

Analysis of the new provision

In an interesting development, social media influencers will now receive PR Packages after the brand deducts tax at 10% of the value of the products sent (provided the influencer decides to keep the products). This regulation has come as a response  to the fact that many influencers were not showing gifts received from brands as promotional income since no actual payment was made to them. 

Impact on Influencers

For micro and nano influencers, it will not be much of a problem because the section is not mandatory for individuals unless their receipts exceed the prescribed amounts specified. That being said, many influencers will now likely try to avoid barter deals and opt for paid partnerships instead, since both the incomes are now taxable. Universally, individuals prefer being paid in cash than in-kind. Many influencers believe that this is a positive change since the content creation industry was not recognised as a “serious” profession. Now that it has finally come within the purview of the Indian Government so as to adapt a concrete framework for it, it reflects a change in the perspective towards the industry.

Impact on Brands

Up until now, the process was fairly smooth for brands, social media managers or management agencies would share a list of suitable influencers with the brand; the brand would approve and accordingly then send PR packages to influencers to promote. Since barter deals were very common in the industry, companies used to send products out to multiple influencers ranging from micro-influencers to big names in the industry with over 1-2million followers.  Now brands will have to prepare a curated list of influencers and content creators that they wish to partner with, and carefully vet and send their products to an exclusive list of influencers owing to requisite tax compliances,  and needing to keep a track of which influencer has decided to keep which product or which one has sent it back to the brand. 

 Disclaimer:

The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife Consulting is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.