Amid confusion, influencers talk about how the new section 194R of the I-T Act will impact their Rs 900-crore industry
Social media influencers are under the scrutiny of the government that recently introduced section 194R in I-T Act to keep a tab on their income. Fashion content creator Juhi Godambe Jain thinks that it is good that the industry, which wasn’t taken very seriously, has caught the attention of the government and looks forward to seeing a concrete framework for it
For many, social media is an escape from real life; For others, it’s serious business. A report by GroupM INCA pegged India’s influencer marketing industry at Rs 900 crore in 2021, and predicted that it could grow at a compound annual growth rate (CAGR) of 25 per cent till 2025 to reach R2,200 crore. These large figures have not missed the eye of the government, which introduced a new section, 194R, in Finance Bill 2022.
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Coming in effect from next month, it requires tax deduction at source (TDS) at the rate of 10 per cent by any person, providing any benefit or perquisite exceeding Rs 20,000 in a year to a resident, arising from the business or profession of such resident.
“We are still figuring it out” said most influencers and social media agencies we spoke to. “My first reaction was ‘Omg! Does this mean I have to pay tax on every gift I receive?’” says the OG of the industry, Malini Agarwal, founder and creative director of MissMalini Entertainment. “But then I spoke to a few people and they told me that the brands would have to deduct tax at their end, i.e. source if they give influencers products worth Rs 20,000 or more in a year, and if the influencers choose to keep them.”
This is an extension of a rule introduced almost two decades ago to govern perquisites, known popularly as perks, says Thane-based chartered accountant Vikas Waghmare. Explaining the new rule, he says, “If a social media influencer [payee] is given anything by a company/brand [payer] amounting to or over Rs 20,000 in a year, which the payee chooses to retain, then the payer must pay TDS. The freebies worth Rs 20,000 or more should come from one source per year for section 194R to be applicable—say a content creator receives beauty products worth s from Brand A, Rs 8,000 from Brand B, and Rs 10,000 from Brand C, then 194R does not apply. But if an influencer receives beauty products worth Rs 5,000 in July, a gift hamper worth s Rs 8,000 in September and another worth Rs 10,000 in March, all from Brand A, then it is applicable.”
Chennai-based Rebecca Roy, who creates travel content as @OdysseyOfTwo with her partner Gowthaman Ilambarathi, is hopeful that this will streamline the industry. She is, however, not sure how it will impact her work, where fight tickets and stay easily cross the Rs 20,000 bracket
The section applies to companies/individuals giving incentives, other than discounts or rebates, in cash or kind, including cars, TVs, computers, gold coins, mobile phones, sponsored trips, free entertainment tickets, etc. While the TDS will be borne by the brands, it will reflect in the influencer’s income.
“Until now,” explains Waghmare, “say an influencer is paid Rs 5 lakh in fees in a financial year and received perks worth of Rs 3 lakh, their income wasn’t taxable. But now, how many of these perks crossed the Rs 20,000 limit will be noted. If the perks were two gadgets worth Rs 50,000 and a trip worth Rs 80,000, the influencer’s income will Rs 5 lakh plus Rs 1.8 lakh. S/he will be required to pay tax on Rs 6.8 lakh.” However, if the products are returned to the company once the promotional activity is over, they wouldn’t have much to worry about.
Masoom Minawala
The problem, content creators point out, is the barter system that is prevalent in the social media influencer industry.
“Brands will stop sending laundry list [of influencers] out to their agencies and work on a more curated list to get the bang for their buck,” says Viraj Seth, Co-founder and CEO of Monk Entertainment, a Mumbai-based digital media organisation. “I think this move will actually reduce the number of barter associations in the industry, which is fantastic for creators, but not so much for brands.”
“The smaller brands rely more on barter systems,” says Natasha Kothari, CEO of Studio UnGap, a city-based social media agency, “because they don’t have the means to go for a full-fledged influencer marketing campaign. Products costing anywhere between Rs 2,000 to Rs 60,000 are sent out to the influencers, depending on their profile. Up until now, the process has been a fairly smooth: We share a list of suitable influencers with a brand; they approve and then gifts are sent to the influencers to promote. Everyone is a bit uncertain now about how things will be done in the future. However, I do see a decrease in the number of influencers that a brand would target.”
Malini Agarwal, Viraj Sheth, Natasha Kothari and Natasha Kothari
Influencers, though, are happy this will lead to a better system. “The creators will now be extremely selective about what we accept,” says fashion influencer and entrepreneur Masoom Minawala, “which will result in transparency between curators and their communities, and also aid a more sustainable and mindful approach to consumption. Unfortunately, this will take away the hope for small-scale brands to scale up through creators.”
Chennai-based Rebecca Roy, who creates travel content as @OdysseyOfTwo with her partner Gowthaman Ilambarathi, is hopeful that this will streamline the industry. “It could limit the barter system and pave the way for an outright fee, as it should be,” she says. Rebecca is still figuring out how this will impact her work. “I am a travel content creator. Flights, as well as stay, easily cross the Rs 20,000 bracket. Sometimes, we receive gadgets to shoot our content better and they can cost up to Rs 1,00,000. [But] I won’t disguise my work. I would rather work with the government to ensure everybody is accounted for. I’ll increase my fee if needed.”
Some of the experiences, like travel and food, may come under a new rule in the coming days or months, says Waghmare. “While gadgets, jewellery, watches, and luxury goods—if retained—will be taxable, travel is a grey area. An influencer can write it off as a business expense because that is his/her job, and isn’t something that can be returned. We should have some clarification soon.”
Content creator and founder of fashion label Arabellaa, Juhi Godambe Jain, says, “It is good that the industry has caught the government’s eye. Initially, it wasn’t taken very seriously. Lately, more people, including the government, have realised the power of social media and the kind of money it is churning, which is why rules are being laid down to form some framework. I see it as a positive step.” Priyanka Khimani, a media strategist and celebrity lawyer, agrees: “In the larger scheme of things, I think efforts are being made to regularise the creator economy, which is growing at a very fast pace and witnessing a lot of transactions on a regular basis.” However, Jain feels the need for better clarity. “It won’t be fair if we have to grapple with loopholes; a clearer framework will help us know the dos and don’ts,” she says.
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