Why social media influencers need to pay tax & how will it impact Influencer's earnings?

Summary: Now Social Media Influencers have to pay tax. Check out all new rules related to tax on influencers and its impact. Read on to know more.

04 Nov 2022 by Team FinFIRST

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Social media has done much more than just bring people together. It has opened an entirely new career option at a global level – that of the social media influencer. A typical social media influencer enjoys a huge fan base and followers whom they have been able to attract by posting informative and catchy content in the form of posts, stories, and videos on platforms such as YouTube, Facebook, Instagram, etc.

Essentially, social media influencers impact the purchase-making decision of their audience – which is exactly what big brands are looking for. In return, the influencers charge a flat fee for such promotions. They may also get paid in kind through freebies such as complimentary air tickets, free gadgets, or even a car/bike.

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What does Professional tax mean?

Are the earnings of social media influencers subject to tax?

There was no tax on the income of the social media influencers until recently, when the Central Board of Direct Taxes (CBDT) announced that a TDS of 10% would be levied on freebies and perks worth over Rs 20,000 received by them from brands for promotions, as per section 194R of the Income Tax Act.

However, the tax deducted at source (TDS) must be paid only if the product or the freebie is retained; if the same is returned to the sponsor once the promotional activity is over, no TDS will be charged. TDS would apply to products such as vehicles, free tickets, mobile phones, foreign trips, gadgets, and other goodies the brand gives.

The industry has welcomed the new taxation rules on the influencer industry. It is believed that every influencer will think twice before accepting a brand promotion since they will be required to pay taxes. This will generate more trust in the influencer-brand relationship, translating to better consumer faith.

What are the implications of the new tax component?

Here are some important things to know about the tax implications on social media influencers in India.

Earnings/income of influencers will be taxed under the head' income from business or profession'. Each social media influencer is liable to be taxed as an individual at the current slab rates
An influencer earning more than Rs 1 crore in total revenue from business in a financial year must ensure that his books are audited through a professional mandatorily. This limit increases to Rs 10 crore if the cash component of the influencer's earnings/ payments is not more than 5%
Social media influencers can also claim certain ancillary business expenses arising from their influencer activities as deductions, reducing their taxable income and bringing down their tax liability. For example, the cost of filming equipment such as a camera and microphone; internet and communication expenses; home office expenses such as rent; business expenses such as travel, etc.

Influencer marketing as an industry can only grow more rapidly in the near future. The decision to bring them under the ambit of tax is a positive shift in the government's attitude towards (and acceptance of) the creator economy.

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