Influencers to be affected by India's new tax regime

Amid this flourishing and growing industry, businesses would often offer gifts and deal in barter collaborations with influencers in exchange for getting promotions for their product/service. However, the recent taxation policy announced by the Indian Government is about to change all that.
The Influencer Marketing industry has witnessed a huge rise in the past 2 years. (IANS)
The Influencer Marketing industry has witnessed a huge rise in the past 2 years. (IANS)

The Influencer Marketing industry has witnessed a huge rise in the past 2 years and continues to grow at a rapid pace. Amid this flourishing and growing industry, businesses would often offer gifts and deal in barter collaborations with influencers in exchange for getting promotions for their product/service. However, the recent taxation policy announced by the Indian Government is about to change all that.

As per the provision introduced in the Finance Act 2022, section 194R mandates a 10 percent tax deducted at source (TDS), exclusive of surcharge and cess, on freebies exceeding Rs 20,000 in a year that influencers receive and retain from sales promotions. This implies that influencers will have to disclose the free samples they receive from brands or companies while filing their income tax return and TDS will be applicable if the freebies are retained by them since such items will be deemed a prerequisite. In case the influencer returns the free samples, TDS will not apply.

With the growth of this industry, there is no denial that influencers have been instrumental for many businesses. The global influencer market is worth approximately $13 billion, and it's expected to grow to $16 billion by the end of this year. In India alone, the creator market is worth $120 million. Additionally, a study found that 3 percent of consumers would consider purchasing a product if it's sponsored by a celebrity. Whereas, 60 percent will be inclined to buy it if an influencer promotes the product. The taxation rules by the Indian Government hence come as a massive game-changer for both influencers and businesses.

A big impact of this policy will also fall upon the smaller businesses that highly rely on barter collaborations. (Pixabay)
A big impact of this policy will also fall upon the smaller businesses that highly rely on barter collaborations. (Pixabay)

"The taxation has come as huge news for all. With this change, influencers will now be able to charge a fair share for their promotions instead of barter collaborations. However, this also implies that businesses will have it harder to get promotions for their products unless the influencers agree to return them or they manage to create a separate budget for Influencer Marketing. Although a lot of this looks blurry right now as the rules have just been announced, we are optimistic that once we start conversations with business, both them and the influencers will be able to negotiate on a fair exchange respecting the Government regulations." shares Pushppal Singh Bhatia the influencer duo - That Couple Though.

Ravneet Kaur further adds, "A big impact of this policy will also fall upon the smaller businesses that highly rely on barter collaborations as they do not have high budgets for a massive paid influencer campaign. Now that these barter products/services will be taxed, it will become difficult for these small businesses to reach out to influencers as they will have to pay for the collaboration else the influencers would not agree to go ahead with the promotion unless they agree to return the product. Hence, in a situation like this, communication between businesses and influencers plays a very important role." (AA/IANS)

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