If you are insanely famous on social media and collaborate with brands, you should know about the new TDS rule. From July 1, you may have to pay tax on receiving free samples/gifts/items from the brands for endorsing and retaining their products.
A new section 194R will impact all these types of transactions that used to go tax-free earlier. And the worrisome part is that the influencer receiving it should pay the tax amount as advanced tax.
Confused? Here, we are explaining the new tax rule in easy language.
What is New TDS Rule 2022?
via:mint
The Central Board of Direct Taxes has a new section- 194R- in its guidelines that is causing trouble for influencers. As per this, 10 percent TDS is applicable on all those who are getting any gift, reward, free item or sample from companies.
However, any benefit or perquisite not necessarily has to be in the form of money. In addition to this, tax deduction is applicable only if the receivables have total value of more than Rs 20,000/year.
Influencers have to pay the tax in advance with an evidence and declaration of benefit received. If the provider is manufacturer, then tax amount will be calculated on actual price at which it would be sold to customers.
In other case, if provider purchase the product, then evaluation will be done on purchased price.
Why This Rule is Made?
via:thebuyt
Influencers have strong impact on the audience and their purchasing decision. And brands take advantage of this by taking their help in promoting their products or services.
For example, a restaurant may hire influencer to try their new meal and post the review on their Instagram. This usually doesn’t seem a big deal.
Moreover, influencers may get additional benefits in few cases. These benefits could be a flight ticket, or a short trip. This way, brands can promote to wider audience easily. On other hand, influencers enjoy free gifts. It is known as barter collaboration.
via:incmagazine
Tracking it is difficult as influencers often don’t mention the freebies as their promotional income. Also, brands hide the same by not adding the free sample product under promotional expense.
But, the new TDS rule will hold back both influencers and companies to escape the tax net. And if they engage in barter collaboration, they will become eligible for tax deduction. However, if they return the free gift rather then retaining, then this rule will not be applicable.
Impact of New TDS Rule 2022
via:telegraphindia
- Reduce deals that include free gifts to influencers
- May affect income of social media influencers
- Impact micro-influencers and brands who rely on influencer marketing to gain followers
- Serves as a validation of this new form of income
- Also prevent brands from taking advantage of influencers and giving them free gifts in return which may not be useful for them
- Prevent non-taxable transactions
The new rule is not much clear among influencers as of now, but gradually it will be. Moreover, it will expand the tax base of the country.