Here’s how the new TDS rule will impact social media influencers and brands

The new guidelines may not have a major impact on influencer activities but a drop can be seen in barter deals being undertaken by brands as they will probably be under the ambit of TDS, say experts

by Shantanu David
Published - June 24, 2022
6 minutes To Read
Here’s how the new TDS rule will impact social media influencers and brands

The Central Board of Direct Taxes (CBDT) has recently issued guidelines on the applicability of 10% TDS provisions, which will come into effect from July 1, regarding benefits received by social media influencers, noting that such perquisites can either be in cash or kind or partly in both these forms. In simpler parlance, this means influencers can no longer be plied with corporate freebies in exchange for brand promotions.

Ankita Chauhan, Director Strategy, Tonic Worldwide, notes that as social media and related businesses continue to grow, regulations and policies are inevitable. “These new taxation guidelines at this stage are only applicable to certain types of benefits/exchanges and also to a certain business size. So, it should not have a major on-ground impact on influencer activities. But of course, all the parties: brand; agency; and the influencers will have to be mindful of this amendment,” she says.

Kunal Kishore Sinha, Co-founder and COO, ClanConnect, an influencer marketing platform and agency, also believes that while there might be initial hiccups due to uncertainty around the development, the on-ground impact of the announcement will be minimal.

“Large-scale influencers who are earning a significant amount through brand collaborations are already paying the relevant taxes on their earnings. Even with 10% TDS levied on freebies, they will be able to claim the amount while filing their taxes. So, influencers will not be losing any money,” he points out while adding that there will be no taxes levied on low-involvement goods like cosmetics, apparel, etc. and so micro and nano influencers will not see a change in their earnings or opportunities.

Shreya Sabharwal, Founder and CEO, Squarefork, thinks it’s definitely going to affect the influencers in a way that they would not agree for barter collaborations anymore considering the fact that they have to pay 10% TDS.

“With the information we currently have on hand, the most significant change in the brand-influencer relationship can be an increase in cash transactions. This will not impact collaborations, but will overturn the norm of influencers being paid for campaigns in the form of free gadgets, devices, or vacations,” says Sinha, while reiterating that the new guidelines will have no impact on barter collaborations or paid collaborations that involve brands sharing samples with influencers. Only free gifts will be taxed by the government since these are additional benefits received by influencers.

However, Sabharwal, among others, believes that this is going to have a negative impact on those who want to become a part of the industry. “Nano or micro influencers will not be able to afford these since most of the collaborations are barter only. As an agency, we feel this is not going to be a very good situation for the influencers or the brands,” she asserts.

Shuchi Sethi, India Lead of influencer marketing platform AnyTag, also believes that it could potentially destabilize the whole industry. “For instance, PR is a big part of the influencer industry. Influencers create a resonance with the brand only when they talk about a product after receiving the package sent to them as a gift through a PR professional. The whole idea of influencers being advocates goes for a toss if they have to pay TDS for a free gift. It puts the whole transactional value into an aspect even if the influencer likes the product and talks about that gift that was sent to him/her.

Sethi points out that a lot of influencers who try to be a part of the industry are lured by these freebies. It is imperative for them to pay taxes on these freebies. Also, for someone who is not earning much but is only doing organic content with a non-returnable product/service this system could create a ruckus in the industry.

Rajni Daswani, Director - Digital Marketing, SoCheers, strikes a more positive note. She points out that in the realm of influencer marketing, free goodies sent to the influencers do indeed generate substantial PR for the brand. “But the interaction is initiated by the brands and the influencers don’t usually choose to receive these products. The new rule, in a positive turn, will definitely make this a conversation where both the parties are involved.”

She adds that from now brands will send out such freebies with much more consideration and only upon the influencers’ consent, allowing the latter to be more selective in their collaborations. By making the process selective rather than generic, it is also an opportunity to curb the cost to the environment and reduce waste.

Sinha also sees this as a largely positive development, which will definitely add more structure to the industry, despite initial uncertainty. “The government’s decision to levy 10% TDS on free gifts like cars, mobile phones, etc. is indicative of the industry becoming more mainstream and regulated.”

Daswani agrees that this rule can be taken as an indication of how big influencer marketing has gotten lately as an industry that newer systems are needed to better streamline it. “This is quite an incentive for aspiring influencers. And even though it has become quite the norm in the influencer marketing space, the industry is so much more than just getting freebies.”

Chauhan observes that this is merely the beginning, saying, “Just like past regulations like declaration of sponsored content, this too will become a part of the working process between the parties. As we see the business evolve and grow, it will continue to receive more such regulations and guidelines in the future.”

“In all honesty, I do not foresee a major on-ground impact in the case of influencers. However, we may see a drop in barter deals being undertaken by brands as they will probably be under the ambit of TDS. The rapidly growing, soon-to-be INR 2500 crore influencer economy in India will not be impacted by this tax regulation,” says Prakhar Srivastava, Financial Controller, White Rivers Media, concluding, “It will only require influencers to become more structured with their taxes and filings as it will contribute to a more transparent economic system in the country. This in no way is a disincentive for any aspiring influencer.”