Let us talk about something a little more cheerful like freebies; who does not like them. Do you know who gets the most freebie? Influencers. Free Products Drive the Influencer’s Economy By promoting of clothes to bags to skin care products, vacations, first-class flight tickets fitness equipment influencers get everything for free, and if that is not enough, they also get paid for promoting the freebies by posting about them vouching for them. Social-first is the new marketing strategy adopted by Businesses, which means if you want a product to be marketed well, do it on social media. First, influencers have thousands and even millions of followers. Brands prefer Content Creators over movie stars for marketing their products, because influencers charge relatively less.

The Influencer’s economy is worth around Rs 10 lakh Crores and is estimated to be worth Rs 12.50 Lakh Crores by the year-end. In India alone, the influencer market is Rs 10 thousand Crores. It is These days at least 20 Crores people around the world call themselves influencers it is a population almost the size of Some of our neighbouring Countries. So, brands go for influencers, but what kind of products are these influencers promoting? This brings us to point number two, accountability.

Paid promotions have replaced honest reviews for freebies, and there is zero accountability.

Compliance

The Central Board of Direct Taxes (CBDT) issued new guidelines which will come into effect from July 1, stating that social media influencers and doctors who get free merchandise for sales promotions will have to pay a 10% tax deducted at source (TDS) on such benefits.

The government has amended the Finance Act, 2022 to accommodate the same, by including Clause 58, which seeks to insert Section 194R in the Act.

The proposed new section provides that: -

“The person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or prerequisite at the rate of ten percent of the value or aggregate of the value of such benefit or perquisite”.

This means that if social media influencers retain the benefit (keeps the product), they will have to report that in the tax return filings and pay 10% TDS on the same under section 194R of the Finance Act, 2022. On the other hand, if the product is returned after a promotion, TDS won’t need to be paid.

The TDS will not apply if the benefits availed by an individual do not exceed INR 20,000, according to Section 194R of the Finance Act, 2022.

In case the influencers or an independent doctor receives free gifts or samples from a company worth more than Rs 20,000. The company shall pay the TDS and if the company does not pay the TDS on the same, the influencers/ doctor has to offer the income and pay the advance tax on the freebie.

In case of doctors and hospitals, free products in the form of medicine samples provided to them will also attract TDS. In case the doctor is in employment at the hospital, the hospital will have to pay the TDS, and if the doctor has an independent practice, then he/she will have to file the TDS. The hospitals can also put the TDS down on the said doctor’s salary as an expenditure, according to the CBDT.

The CBDT has also clarified that sales discounts, cash discounts, and rebates allowed to customers by the businesses will not count as a “benefit” and thus, customers do not have to pay the TDS on the same.

Authors:

Mihir Jain |Associate Consultant |+919821700600|mihir.jain@masd.co.in|LinkedIn Profile

Neel Shah |Associate Consultant |+918369754362|neel.shah@masd.co.in|LinkedIn Profile