India’s Central Board of Direct Taxes (CBDT) has released a notice effective July 1st, which applied Tax Deducted at Source (TDS) on ‘benefits received from business for sales promotion’, now applicable to social media influencers and doctors.
Earlier this year, the Union Budget had made provisions for TDS on similar income sections as an attempt to plug tax revenue leaks. This was done by introducing ‘Section 194R’, a new addendum to the Income Tax Act, 1961.
How Does The New Tax Rule Work?
The Income Tax Act itself was interpreted by the Supreme Court before the new changes were announced, in which Section 28, Article IV was the main focus.
To put it simply, the July-1st rule will specifically add doctors and influencers to the list of people Section 194R is applicable to. This means a 10% TDS levy for any person providing benefits and exceeding ₹20,000/annum to any resident.
Regarding social media influencers, the ‘person’ refers to companies or individuals providing ‘freebies’ in exchange for social media coverage.
According to NDTV, Kamlesh C Varshney, Joint Secretary in the Finance Ministry had explained the benefits, which he said include free medicine samples received by doctors, foreign flight tickets or free Indian Premier League (IPL) tickets in the course of business and more.
Other common items include gift cards, vouchers, vehicles and travel packages, which are common features on full-time influencer accounts.
Varshney emphasised that these should be disclosed while filing the income tax return, adding that it shouldn’t be avoided based on the fact that these items are not being sold.
Are There Tax Reliefs?
According to the CBDT, no tax will be levied on the basis of Section 194R from any government entities — no big surprises there.
While it seems this may affect the business practices of influencers, who rely heavily on goodies from companies in order to create content and generate revenue, the government has offered a middle ground of sorts.
While the 10% tax stands on expensive ‘gifts’, the CBDT also shared that the inclusion of sales discounts, cash discounts, and rebates ‘would put the seller into difficulties,’ and hence are not part of the new rules.
The department also confirmed that they would not apply the rules on any returned freebies — so tech influencers who often review and return products to their manufacturers have little to worry about.
(Featured Image Credits: Unsplash)