Social media has been abuzz with the news of Influencers to pay tax on all the free products they get for promotional purpose. Let’s take a deeper look and understand how this will work and help the brand, targeted customers, and the influencers.
Use of social media has skyrocketed over the years has also lead to a risen the army of influencers. And it’s not a surprise that brands want to leverage influencers by giving them free products, services or money in exchange of a review.
Influencers payout depends on the size of their followers and how much traction they generate from their post, story or video which leads to sales for the brand. Influencers get to keep the products that they use for promotion purpose. Be it clothes, skin care, home décor or a free travel ticket, they get all kinds of perks. Finally the Indian Tax department has decided to put a break on this.
The Tax Implication
The Indian IT department has taken steps to control the perks that influencers enjoy. Also, the provision was included to widen the tax base. The law was introduced in the Financial Budget of 22-23 and will be implemented from 1st of July 2022.
The act requires Tax Deduction at Source (TDS) at the rate of 10% for any benefits or prerequisite provided to influencers who receive any product like beauty products, car, outfits etc and retain the same. However, if the influencer returns the product, the TDS will not be implemented under section 194R. The deduction is not required to be made if the Income or benefits don’t exceed Rs. 20,000/- in a year.
Sale discounts, cash discounts or rebates will not be subject to Tax.
How does it help improve the influencer and target consumers relation?
Individuals place a lot of trust in the influencers they follow and make purchase decisions based on their recommendations. But the consistency in the influencer recommendation is what matters. One day you will see them promoting a XYZ brand of face cream and the very next day they will be talking about how they love the new face cream by ABC brand. There is no way one can vouch for the accountability of these influencers. You cannot really tell how well he/she has researched the product before recommending it to their viewers. The question that arises here is, how genuine the review is and has the influencer really tried the products before recommending it?
Again, being an influencer doesn’t require any qualification. Any and everyone with a camera in hand can be an influencer. This again raises the same question about how well the influencer knows the brand or the product before promoting it. For e.g., an influencer has nothing to do with finance but is recommending a financial product to his/her viewers. These reviews are most of the time hearsay or swaggering in nature.
Influencers now paying Tax on the products will make sure that they work with brands they really want to and not take up anything that is offered to them.
International laws for influencer marketing have been stringent from start. India has finally started taking the booming influencer market seriously by adopting steps to make sure that the work done as an influencer, or a promoter is done with utmost diligence.
With the new tax law in place, we can now expect some genuineness in the promotions as the influencer him/herself will be screening on which brand to work with and which to skip.