Social media influencers will now need to pay TDS on free gifts

If you’re an influencer in India, or if you’re planning to be one, here’s something you should know: As per recent reports, 10% TDS will be levied on freebies received by social media influencers as part of their brand promotion deals beginning July 01, 2022. The deduction will however not come into effect if the influencers return the said goods. 

Influencer marketing, at its core, is a form of social media promotion that relies on recommendations and mentions of products from influencers, or people who have a sizable social following and are recognised as ‘gurus’ in their field. The creator market, valued at a whopping $120 million in India is effective and highly relevant to the future of marketing owing to the high level of trust followers put on influencers and their recommendations. Their activities act as a form of social validation to potential customers for all kinds of businesses.

Influencer marketing may seem lucrative but make sure you have all the information before you jump in. TDS deductions will soon apply to the benefits that influencers enjoy. Starting July 1st, the government would charge a 10% TDS on freebies and promotional gifts influencers receive from brands. 

While there are set regulations and rules that apply under section 194R, this comes as a provision primarily introduced to widen the tax base. Technically, this also ensures that those who benefitted from promotional activities highlight it in their tax returns and pay tax where it is due. In hindsight, this clause under the Finance Act 2022 also benefits consumers by prompting the influencer to think twice before accepting a brand promotion. The best part, it helps reinforce trust in brands and thereby strengthen the influencer consumer dynamic! 

Despite the levy on the influencer community, the provision provides some respite for them. The tax deduction will be circumstance driven. According to section 194R of the Act (the TDS provision), a product such as a car, mobile phone, outfit, or cosmetics, which is returned to the supplier/brand after being used to provide a service, will not be considered a benefit or perquisite. In simple words, if the influencer returns the product to the brand after using it for a marketing activity, they won’t have to pay TDS on it. 

How this impacts brands and their social media efforts in the long term remains to be seen. If you’re a marketer or brand thinking of influencer marketing as a part of your marketing mix, it might not be too late to get started. Here’s what this rule would mean for you, if you’re planning to explore influencer marketing as a brand.

With the deduction slated to come into effect next month, influencers are likely to hike collaboration fees in order to mitigate the short term cash flow implications. Brands that excel at giving free gift hampers as a part of their promotions may find it difficult to find a way to get influencers to try their products without having them pay for it. With digital marketing occupying prime real estate in brands’ marketing budgets and influencers forming a key cog in that wheel, the implications of this tax deduction will throw up interesting collaboration dynamics. 

To kickstart your influencer marketing activities, click here and take inspiration from some e-commerce brands that know how to get the most of these social media stars! 

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