What does 10% TDS on Freebies mean for influencers?

From July 1, 2022, social media influencers will be subjected to a 10% TDS (Tax deducted at source) on the freebies they receive from brands under the Section - 194R, Income-tax Act, 1961-2022. 

As per the act, it will be applicable when the aggregate value of the benefit exceeds Rs 20,000 in a financial year and when the gross value of sales or the turnover from business exceeds Rs 1 crore or from profession exceeds Rs 50 lakhs in the preceding final year. 

It must also be noted that according to the guidelines issued by the CBDT if the influencer returns the product, TDS won’t be applied.

“Whether this is benefit or perquisite will depend upon the facts of the case. In case of benefit or prerequisite being a product like a car, mobile, outfit, cosmetics etc and if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit/prerequisite for the purposes of section 1948 of the Act. However, if the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act,” the guidelines state. 

A few examples of items for which TDS deduction can take place include cars, mobile phones, sponsored trips etc. 

The complete guideline can be accessed here: https://www.incometaxindia.gov.in/communications/circular/circular-no-12-2022.pdf 

What does the influencer marketing industry think about this

Prior to this, influencers were taxed in the same manner as any other individual or organisation. They are classified as self-employed individuals or business owners. As per experts, this will affect the big influencers whose income is high considering income is one of the conditions mentioned in the guidelines. 

Ishan Jindal

“For micro and nano influencers, it wouldn't be much of a problem because it is not mandatory for individuals, Hindu Undivided families (HUFs) and directors whose gross receipts/gross turnover/total sales do not exceed Rs 1 crore, or from professionals who do not exceed Rs 50 lakh. Though for macro or large influencers the rate of tax would be 10% of the value or the aggregate value of such benefit or perquisite exceeding 20 thousand,” said Ishan Jindal, Founder & CEO of Wobb. 

“Such a provision is bound to affect the earnings of the influencers, largely because a lot of collaborations are barter and sampling-based. The grey area might make some influencers hesitant about such collaborations altogether. While an exact percentage or figure of the impact will remain unknown till better research is executed after the enforcement of the policy, however, one can say the impact might disrupt the engagement of influencers with such collaborations intensely,” he added. 

Sagar Pushp

Sagar Pushp, Co-founder and CEO, ClanConnect, said, "If you look at the details, it states influencers who were getting inexpensive goods will not be impacted. I don’t think it will affect their earnings so much. As per my understanding, influencers who were getting freebies like cosmetics, skincare etc will not be marked for 10% TDS. However, influencers who were getting mobile phones, cars etc and if they choose to retain the gift, it will be taxed."

"One way to look at this is that the Government has recognised the industry as it is growing day by day. Hence there need to be certain regulations. Free gifting of expensive phones and cars need to be accounted for. In my humble view, what is happening is not wrong and is a good move," he added.

Shreya Sabharwal

Shreya Sabharwal, CEO of Squarefork, stated, "This is not a welcoming note for social media influencers who are required to pay a 10% TDS if the product offered for promotion is held by the influencer.” She said the authorities could have taxed paid collaborations, rather than barter. “This is their full-time profession, not a hobby. I believe it should be appropriate at both ends,” stated Sabharwal. 

Pranav Panpalia

According to Pranav Panpalia, founder, OpraahFx, influencers will not be keen and some may not even put out posts until the brand agrees to take care of the TDS. He said that although the decision is not great for the influencer marketing industry, it will benefit the country. 

He further added that this will directly impact smaller brands and start-ups. “The barter system was a fair practice. Otherwise, influencer marketing is an expensive affair. This was one way for start-ups to get their products out there. Some small brands might not have the budgets for covering the TDS,” he explained. 

Shivam Agarwal

As per Shivam Agarwal, Founder and CEO, Deckster. Live, “It’s hard to put a monetary value on such promotions, hence putting a TDS here seems harsh to me. For the brand doing such promotions, it’s an expense anyway and they have paid their tax liabilities upfront so collecting TDS from an influencer because these promotions might help businesses generate revenues doesn’t seem very fair to me.”