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With a move by the Central Board of Direct Taxes (CBDT) to expand the government’s tax base, 10 percent TDS on freebies and business promotions might have a significant impact on most of the influencers. But, it might have little effect on categories like finance influencers because they don't usually get freebies or merchandise. That’s because most of their ads are based on services instead of product promotions.

So who will it impact the most?

The categories of influencers which would be most affected are lifestyle, fashion, tech (electronics) and travel.

For example, if a company sponsors a trip of a travel influencer for Rs 1 lakh, then the company will be liable to deduct Rs 10,000 as TDS. Same goes with the goodies provided to lifestyle and fashion influencers. Even the tech influencers often get freebies worth above Rs 20,000, which is the non tax limit.

But it has also been notified by the CBDT that no charges will be applied if the gifts are returned to the company after the purpose of sales promotion has been fulfilled.

What are companies likely to do now?

So my best guess is, with promotion of durable goods like phones, cameras, or laptops which are above Rs 20,000, the companies might just skip the gifting system and rather rent out for free for the required duration to the content creators.

Coming to non-durable or perishable goods, like let’s say promotion of a bakery where they send you cakes or cookies, they anyway barely cross Rs 20,000.

Talking about finance influencers, they usually do not receive free tickets on IPL matches or trips for sales promotions for that matter. Also, usually the promotions finfluencers do are taxed. Freebies are a rare thing in their niche. Hence, with or without this new development, anyway they are liable for 1 to 10 percent TDS. So, I do not see a significant impact on social media niches which are information+entertainment centric.

And the bottom line?

All in all, we might see a drop in freebies above Rs 20,000 - where companies either collect the goodies after promotion is shot, or companies actually pay the TDS for high cost travel sponsorships or events!

Which influencer categories will be most affected by TDS on freebies?

The new tax-deducted-at-source (TDS) rule for social media influencers is putting a check on gifts, trips and other perks from July 1.

The Union Budget has brought in the provision of TDS on benefits received from business or sales promotion activities, which would be applied to social media influencers and doctors. A TDS of 10% would be applied to such benefits.

Here are some of the highlights:

A TDS of 10% would be applied by that agency, company or person who is providing benefits or perquisites that exceed Rs 20,000 in a year to a resident, which arises from the profession or business of that resident.

As per the report, the deduction will also be made when the deductor’s gross sale or turnover from business exceeds Rs 1 crore. Further, it will also be applied if it exceeds Rs 50 lakh from the preceding financial year.

Why is it being applied?

The Finance Act 2022 introduced this provision in order to widen the tax base. This was also to ensure that those who benefited from such sales promotional activities highlight it in their tax returns and pay tax on what the product or benefit is worth.

On what would it be applied?

Some of the examples on which the 10% TDS would be applied are travel vouchers to commission agents for their family for achieving sales, a director of a company receiving a car, a flat to a real estate consultant.

When a person gives incentives in cash or kind such as television, mobile phone, gold chain, computers, etc. It will also be applied when a person sponsors a trip for a recipient and for his or her relatives when he has accomplished his targets. Further, when a free ticket to an event is provided and free medical samples are given to a medical practitioner, TDS would be applicable there.

On what grounds would it not apply?

In the case of social media influencers, if the benefits or freebies are retained by them, then only the TDS of 10% would be applied. But if they are returned to the person who provided the freebies, TDS would not be applied there.

To be sure, whether the equipment, freebies or products given are benefits or perquisites, would be dependent on the facts of each individual case.

In the case of doctors or medical practitioners who are employed with a hospital, free medical samples or medicines received by them would attract a TDS of 10% on free samples given to the hospital. Here, the TDS will be deducted by the company that has provided that benefit to the doctor.

Potential consequences and challenges

That rule would lead to social media influencers and doctors thinking twice before receiving or saying ‘Yes’ to such perquisites, freebies or benefits. On the announcement of this rule, social media influencers and influencer marketing agencies took to platforms to highlight what this decision meant for them.

One of the influencers via her Instagram handle mentioned that she hoped that now brands or agencies would seek consent before sending packages. She highlighted, in a way, this rule would lead to limited or minimal wastage whereby, “probably creators could refuse ‘NO’ to some PR instead of randomly receiving packages (sometimes irrelevant to the content we create) which is fantastic.”

Explained: What TDS on freebies for social media influencers and doctors means for brands

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