Opinion: New income tax laws for creators - Decoding the good & the bad

Section 194R incorporated in the Income Tax Act, 1961 suggests that social media influencers and doctors are subject to TDS on freebies received for sales promotion. Neel Gogia decodes what it means for the creator economy.

The term ‘creator economy’ which was non-existent a couple of years ago has reached a whopping $104 Bn in 2022. At this juncture, there are 50 Mn people who call themselves creators. If we talk about the Indian market specifically, YouTube reported contributing 6,800 cr to the economy in 2020. The platform in the same report also revealed that it created 6.83 lakh full-time equivalent jobs. Yes, you read that, right- 6.83 L! These statistics clearly prove that the industry has found a way to become essential from non-existent in a short span of time & there is no stopping.

In fact, the impact has been made to such an extent that being a creator/influencer has not only been recognized as a full-time career option but, has also emerged as one of the most attractive career options (as revealed by a BBC poll). This on the other hand of the spectrum has also made regulatory bodies enter the picture. Last year itself, ASCI released regulations regarding promotional content, and this year, very recently, Central Board of Direct Taxes (CBDT) guidelines have announced a 10% TDS deduction for influencers. However, one may debate that since the new-age job role is different from the usual, it demands different, more inclusive taxation laws. 

Also Read: A Galaxy filled with James Webb Space Telescope Brand Creatives

So, what is this new law and what exactly does it mean for the industry? 

Section 194R incorporated in the Income Tax Act, 1961 suggests that social media influencers and doctors will be subject to tax deducted at source (TDS) from 1st July, on freebies received for sales promotion. 

Let’s decode this...

Brands will now have to pay 10% TDS on the value of the barter and that value will be mapped to creators’ PAN cards which means that value will be added to their income. 

Let’s take an example to understand this. For instance, if a creator gets a phone worth 1L to review, firstly, the brand will cut 10% TDS at their own end. Then, if the creator decides to keep the phone with him/her that 1L will be added to their income. They’ll have to, later on, pay income tax on it, depending on the tax slab they fall in (most creators fall in the 10-30% tax slab). However, there are certain exceptions- 

1. The creator must retain the product after reviewing it. If they return it to the respective brand, they will be exempted from the tax. 
2. The total amount of benefits or perquisites received in a year must exceed Rs 20,000 from the brand. 

These new restrictions on collaboration deals are definitely going to change the dynamics of how brands and creators operate in the space, let’s understand how. 

The Impact

1. The new TDS rule will not have a positive impact on the nano or micro-influencers specifically. While starting out these influencers largely depend on barter deals to make their name in the ecosystem and showcase their work to potential brands. However, after this rule, they might not be able to afford the products. On the other hand, one can hope that the industry trend might change and these budding influencers might also start getting paid real money for their hard work.
2. Travel and tech influencers will also be largely impacted by this rule. Since the value of products or benefits they receive can easily shoot up their total income. It will be interesting to see how this segment will make a turnaround and continue to operate seamlessly. 

What the future holds

The new taxation law is bound to affect the number of barter collaborations that will happen in the industry. But, on a positive note, the new taxation means that at a policy level this industry is being perceived as a serious profession. No more is it just ‘making videos in your room’ but making impactful content that has a clear-cut ROI and is driving quantifiable action from a large audience.  Also, although the law will reduce the number of barter collaborations, it will ensure that creators/ influencers become more mindful in selecting and associating themselves with a brand. Thus, only promoting products/ brands they truly believe in which will then positively impact their goodwill amongst the audience. While we await more clarity on the law, I’m confident it is a step in the right direction to recognize new-age job roles and career paths.

This article is authored by Neel Gogia, Co-founder, IPLIX Media.