The social media platforms like Youtube, Instagram, and Twitter would facilitate Gen Z folks through every corner of the country to attain a higher customer base for everything from toys to travel destinations and would incur influencer marketing as an integral portion of the marketing mix for the owners of the various brands. Since there is seen a consistent growth of 25% each year, the industry would seem to attain Rs 2200 cr by the year 2025.
Influencer marketing used to come in a joint venture with the owners of the brand, the purpose of advertisements vary from subtle product utilization in videos published online to clear advertising. Since the owners of the brand take the advantage of their endorsements and for that influence, marketers might obtain the products and services of those brands. Fashion influencers may possess outfits, travel influencers might obtain free flight or cruise tickets. The influencers with high popularity might be given luxury watches and cars they advertise for.
The same year’s budget has incorporated TDS section 194R of the IT Act, 1961, a 10% TDS to any individual will be deducted to furnish any advantage to a resident that comes from a business that would be taken by these people as per the condition.
Compliances Made by the Indian Government
According to the TDS provision which would be effective dated 1 July 2022, the Central Board of Direct Taxes (CBDT) has furnished the rules in the form of Q&A, which concerns the influencer industry. The question that arises is whether the grant of the product to the influencer would be an advantage considering the same which relies on the facts of every case.
CBDT made a distinction as to whether the product would be retained or returned back. The view specified that if these types of products would be retained by the influencer post to use to provide the service to the brand owners, the grant is treated as an advantage. While there is nowhere mentioned in the guidelines that the Tax Deducted at Source (TDS) obligation will be levied when the product is furnished to the influencer or on the finish of the services.
There would be no TDS needed in which the aggregate value of the advantage between every brand owner and the influencer in the tax year does not be more than Rs 20,000 or where the influencers’ total gross receipts do not surpass Rs 1 crore for the case of business or Rs 0.5 crore for the case of the profession, in the former tax year.
The rules specify that the advantage value must rely on the fair market value, excluding where the brand owner would buy the advantage prior to furnishing the same (the price of buying must be taken for that case) or in which the items would get manufactured through the owner of the brand (the cost where the manufacturer imposes to its customers must have opted). Fair market value would be described in the guidelines. According to section 2(22B) of the Act, the same is described to show the cost of the capital asset will fetch in the open market, the price under the guidelines. There are no rules like that specified till now.
What is Needed to Remember by the Brand Owners?
Things like expenses to find out the advantages furnished to influencers must be validated by the brand owners. This updated provision would seem to be concerned with providing the products on and above the contractural payments since the cases of the contractual payments are unlikely to be authorized as benefits (it might be subject to the additional TDS provisions like professional fees).
The owners of the brand shall be required to build the procedure. Beyond facilitating the related contractual clauses, they require the systems to monitor the dispatch and return of the products and maintain the documentary assistance. In which the brand owner would not able to demonstrate these types of facts, the same might be recommendable to move with safely through following the compliance and recover the tax through the influence or through the total TDS. The bargaining that an influencer performed for bearing the TDS the same provision can surge the marketing spend for the owner of the brand.
The tax council can ask to fetch TDS non-compliance via assessments. Any non-compliance might be directed to the outcomes like a tax deduction for the expense being denied, interest levy, and penalty.
The guidelines nourish a valuable alternative to TDS allowing the owners to laid on the declaration and proof obtained via influencer that the tax on these advantages would get deposited as advance tax. The same might proved to be the practical solution for solving the issues.
Read Also: Complete Guide to File TDS Returns Via Gen TDS Software
What Social Media Influencers Require to Know?
For bearing TDS or for advantage being replaced through monetary consideration as they mutually agree, the influencers can acknowledge negotiating for the brand owners.
In which the owners of the brand deduct the taxes, the influencers could avail of the credit for TDS and file the balance tax liability subject to the applicability. As an option, they can file the related advance tax and furnish the declaration along with the proof to the owner of the brand. In any case, It is important that influencers report their taxable benefits/perquisites in their tax returns. In this regard, this provision would likely require influencers to comply with their tax obligations more voluntarily.
On the upside, the guidelines indicate official recognition of the influencer industry by the government, which could be beneficial for its growth.
