Sunday, Aug 14, 2022

Party Over For Indian Influencers? Govt Slaps Tax On Freebies

From fashion to fitness, there are influencers of all kinds on social media with followers ranging from 10,000 to several million. Some influencers have more followers than Bollywood actors, sportspersons, and even politicians


Social media influencers are often treated at par with celebrities by brands these days as they wield enough impact on popular platforms such as Instagram, Twitter, and Snapchat, among others.

From fashion to fitness, there are influencers of all kinds on social media with followers ranging from 10,000 to several million. Some influencers have more followers than Bollywood actors, sportspersons, and even politicians.

The influencer culture received a push as Gen-Z, millennials, Gen-X, etc., found it easy to create videos, podcasts, and short clips with cheap data, and budget smartphones.

The result? They started getting brand collaborations and money to post something on their pages or endorse products on videos.

This has been a win-win formula for brands and influencers as companies find it easy and cheaper to collaborate with social media celebs than with actors or sportspersons. On the other hand, influencers often get freebies as they get to keep the products they endorse besides the money they get for a post.

Sometimes, they get free flight tickets or holiday packages, as well as free meals, among other benefits.

But it looks like things are going to change now as the government has decided to tax them for these freebies from July 1.

So, if you’re planning to start a YouTube Channel or a page on Instagram to become an influencer, make sure you are aware of the developments. Here’s how it is set to change the creator economy:

How the influencers will be taxed?

As per the latest Central Board of Direct Taxes (CBDT) guidelines, influencers will now have a 10 per cent tax deducted at source (TDS) on freebies worth more than Rs 20,000. However, if they return the products, TDS will not be applied in that case.

The influencer will have to pay 10 per cent of the value of the benefit by way of advance tax and present the provider with evidence of payment in the form of a challan and a declaration before receiving the benefit.

Creator economy in India

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.

The creator economy has grown to Rs 1,300 crore in the last couple of years with brands opting for social media influencers to promote their products. As per Oxford Economies’ report, YouTube content creators alone contributed a whopping Rs 6,800 crore to the Indian Economy in 2020.

Influencers usually get paid based on how big an audience they have on social media. The number of brands they partner with coupled with the rate of the success of their sponsored or advertised content also plays an important role in deciding their income.

Why does the government want to tax the influencers?

Influencers are taxed in the same manner as any other individual or organisation that earns money. Influencers, other than companies and partnerships, are classified as self-employed individuals, or persons engaged in trade or business as sole proprietors for tax purposes.

With the new rule, the government aims to bring transparency to the creator- and influencer-driven models as they have grown immensely in the past few years. At the same time, it looks to widen the tax base in the country.

How much do social media influencers usually earn?

Social media influencers in India typically earn from several thousand rupees to even anywhere in lakhs for a post or several posts, depending on the deal they have with a brand. But it’s difficult to say with certainty who earns how much because it depends on several factors and collaborations.

How big is the Influencer market in India?

According to a Collabstr report, the influencer market has grown by 42%, from $9.7 billion in 2020 to $13.8 billion in 2021 as more content gets generated. India alone enjoys a creator market worth $120 million. 

As a result, businesses today prefer influencers when it comes to promoting their products, even over celebrities. While influencers charge relatively less compared to celebrities, they have also proven to be more effective.

Value of the Creator’s Economy in 2022

With a market size of 50 million content creators, and an influencer marketing industry size of $13.8 billion, the total value of the creator’s economy is anticipated to be $104.2 billion in 2022, according to news reports. 

And this is growing each day. It must be noted that almost $800 million in venture capital has been invested in different creator ventures so far. YouTube alone is predicted to generate $30 billion in revenue by the end of 2022 from content creators across the globe.