Taxing the Influencers Community? Everything about the new Tax

The influencers community has picked up immense steam, especially in the past  2 years.

Since 2016, the community’s market value has grown from $1.7 billion to a massive $9.7 billion. This value is further expected to grow and hit a whopping $16 billion in 2022!

The influencer economy is prospering like never before. 

Influences in India, based on their social media following, can earn anywhere between Rs.10K to Rs.2 Lakhs for a simple social media post for a brand.

Every day you see more and more people joining the party. 

However, there appears to be a problem for the community.

Whenever there’s a flourishing industry making lots of money, the government wants a cut from it, and just like it is for the other markets, the government seems to be wanting to have its share in the influencer economy too. 

Yes, you guessed it right, the government is rolling out a new tax on the influencer’s community!

The problem is not the government wanting to tax the influencer marketplace but how it will be taxing the non-monetary income influencers.

Earlier, as the rules weren’t very clear, the government wasn’t able to get its dues on the non-monetary income.

To explain a bit more clearly there are two types of deals a brand makes with an influencer:

1. A monetary deal wherein the brands pay the influencer a certain amount to endorse their brands’ services or products.
2. The non-monetary deal wherein the brands gift freebies to influences to endorse their products and services.

Now the government can easily tax the monetary deals as both parties are exchanging money for the work done but the non-monetary deals are much like a barter system wherein there’s no exchange of money so it becomes difficult for the government to track and get taxes on such deals.

But to end this confusion the government, from 1st July has ruled out a new scheme named TDS (Tax Deducted at Source) for the social media influencers. 

With TDS the government will easily be able to tax the influencers for all the non-monetary deals and the freebies they are getting from the brand deals.

How Will this TDS Tax Actually Work?

Suppose you are a travel influencer and you get a DM from a resort requesting you to visit and promote their retreat on your Instagram handle.

Being an influencer you will obviously want something in return so they offer you a one-week stay for free in the resort. 

Now an outing that would’ve cost you anywhere between 10k to 2 lakhs was accessible for free.

And in return, you are just expected to click nice pictures of the location and post them on your Instagram profile with some enticing captions and promote your stay and the resort (well we could do it for free).

But looking at the massive following you have amassed you want something more in return so you act like you’re still considering the proposal. 

The resort very well understands this and sweetens the pot some more by offering you the latest smartphone costing Rs.90,000 so that you can document your journey in all its glory.

A stay giving you products worth more than Rs. 1 lakh, you are obviously not backing off here.

So you accept it!

Now the only problem here is that there’s no money involved. It’s a barter deal where you are getting something in return for doing something for the brand.

So the whole problem that lies here is this barter.

Paying tax on the income is easier but paying tax on freebies is a lot more complicated. 

No one records or reports them to the tax authorities.

The matter’s made worse when the brands report it as a business expense.

Which, practically, is not wrong. After all, they have spent this money on advertising their products and services.

To overcome this problem, the government, with the new TDS rule, is asking the resort to deduct 10%  from the total cost and give it to the government. This  10% is the tax amount that the influencer was liable to pay.

But now how can you calculate the tax on a free resort stay?

Well, you practically cannot, but there’s still a way!

The resort knows how much the stay costs and they also know how much the phone that they have gifted costs.

Considering the stay costs Rs.50,000 and adding the amount with an Rs.90,000 mobile phone they can now establish the total price as rupees Rs.1,40,000.

The resort cannot withhold  10% on this sum considering that there’s no money involved in the deal, so the government can technically mandate the influencer to pay the tax in advance which will be 10% of Rs.1,40,000 before the resort hands over the keys to the room and the phone.

So now the influencer will have to pay an amount of Rs.14,000 to avail the freebies.

Is there a way to somehow get around this TDS Tax for the influencers?

Well, there actually is!

If the total sum does not exceed Rs.20,000 during any financial year or if the influencers return the freebies then they could potentially get away with paying this tax.

But again, who will like to give away the latest phone they are getting?

So, in a nutshell, most influencers will have to pay up even when they get freebies and this is likely to change a few things in the influencer market community.

For starters, all the influencers will probably think twice before entering into any barter deal now.

It is also possible that the influencers will now reflect on the kind of brand they’re promoting. 

They could also stick to promoting and endorsing only if the products are totally worth it. 

And this will potentially also help the consumers weed out the more frivolous options in the market.

Well, this is just a consideration. We will have to wait and see what this TDS will hold for us.

How do you think TDS will help the brands, influencers, and consumers?

Let us know in the comments your take on this new tax!

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