There was a time when “Influencer Marketing” was the newest trend and everyone in the industry was on metaphorical steroids to become one. They were valued more than celebrities and some of them even shot to fame from rags to riches by simply endorsing a brand on their popular social media handles. This certainly didn’t go unnoticed by the Big Brother of Advertising – ASCI. Yes! Advertising Standard Council of India does take note of all those who cross the line in advertising and become filthy rich. According to recent news, from July 1, all social media influencers who receive gifts to endorse brands will be taxed at 10%. It’s not just influencers; even doctors need to produce proof of the free samples given to them for sales and promoting a brand while filing their taxes. Well, is it a wise choice? This article will elaborate on the topic and at the end, you will have a clear picture as to why this particular move was made in the first place.
Going by the Books
According to a provision introduced in the Finance Act 2022, section 194R of the Income Tax Act mandates that 10% tax be deducted at source, exclusive of surcharge and cess, on free samples and gifts that are priced more than INR 20,000 in value in a year. That’s what the law says, but TDS (Tax Deducted at Source) will be applicable if the influencers choose to retain the product beyond promotional purposes, and if they return the freebies, TDS won’t be applicable.
In the case of doctors, if a doctor is employed with a hospital, they are liable to pay taxes on the free medicines that they get. The hospital will treat it as a benefit and deduct income tax.
Key Takeaway: TDS would apply to products including cars, television, mobile phones, free tickets, foreign trips and other goodies given to promote a business.
Barter, No More!
One of the ways that brands remunerate influencers is by a simple barter deal. The brands give them a bunch of freebies and the influencers in exchange, promote the product on their social media handles with engaging content. Such deals have become a default offering these days and honestly, brands are losing their mojo because of excessive influencer marketing.
Brands these days are focusing more on quality than quantity, and consequentially, have become more selective about working with a handful of influencers.
Bracing for a Bigger Impact
What appears to be a snowflake initially, may snowball into an avalanche later and impact the brand on a bigger scale. With influencers turning down promoting products or refusing to pay their taxes for promoting the brand, eventually, the burden of tax might end up on the brand. Not just that, this would also change the way brands and influencers engage with each other on a commercial level. Basically, every influencer marketing campaign revolves around the needs of the brand. Their association has many names – a paid collaboration, a paid partnership, sponsored content partner, and so on. When there comes the tax angle in between, the arrangements between the brands and the influencers will certainly be reconsidered from various perspectives.
From the government’s perspective, there will be more people paying taxes. Yay! Welcome to the tribe youngsters! On a serious note, many small and middle-class influencers who were doing it to make ends meet might find this move clumsy. As advertisers and cohorts in the same neighbourhood, micro and nano-influencers affected by this move would be needing some guidance from the experts. Some influencers can also opt for monetary compensation from the brands if needed.
At 3 Dots Design Pvt. Ltd., we believe that influencers are the way forward to promote brands and they should be taken seriously on more grounds other than just from the yardstick of taxes. Being one of the best ad agencies in Pune, we always up the ante with strategic planning, engaging content on the digital platform and designing continuous, yet creative communications. If you wish to know more about who we are or what we do, please visit www.3dotsdesign.in or get in touch with us at contact@3dotsdesign.in to enhance your brand value.