Creators! The ‘freebies’ you receive are now going to be taxed at 10% – here’s what you need to know to be completely prepared!
The 10% TDS- or ‘Total Dhamaka of Surprise’ as we are calling it- is something that has driven the whole creator space into a frenzy- is the Indian Government trying to stop the party? kill the vibe? or is this something that is a great move towards formalizing the creator economy with potential benefits in the future for creators? We don’t know the answers to all of that, yet (and to be honest, nobody really does!) but we definitely do know that we want to help the creator community navigate this in the best possible way, so read on for some great, easy to follow tips!
As per the new guidelines, a 10% tax deduction at source (TDS) will be levied on freebies if social media influencers and doctors receive these goods through sales promotions and their value exceeds Rs. 20,000 in a financial year.
Influencer/creator marketing has BOOMED in recent years, and how! While initially bolstered by the pandemic, a massive factor of this growth has been the ability of brands to tie up with influencers easily, especially in the form of barter deals- which involves an exchange of freebies for content.
As expected, where there is smoke, there is fire and the Government has now decided to tax individuals for receiving freebies, in lieu of services rendered.
We at Kreo have broken this down for you as an easy to follow guide:
Who gets affected?
Yes — don’t worry, you can still post a photo on Instagram of the new iPhone your relative living abroad got you, if that’s what you’re wondering!
Both, brands and creators are affected by this, with some limitations. It’s unclear as to who bears the brunt and at what stage, but the government has clarified a few broad guidelines that are mentioned down below in the article (go right to the end if you want to skip ahead).
From a creator standpoint: Influencers with100k+ followers already pay taxes on their earnings from large brand collaborations especially because of the large quantum of money involved. In all likelihood, this is MOST going to affect nano influencers (<10k followers) the most, since most of the collaborations they do are on a barter basis. As seen below, a SIGNIFICANT amount of creator revenue comes via brand deals: (Source)
Brand deals by far make up the largest chunk of a creator’s earnings, followed by Ad share revenue at 5%
Now if a food-fluencer gets a free meal at a restaurant, how this would work…no one knows!
What does this mean for brands?
The overall sentiment is that the government has finally recognized the creator ecosystem as a real contributor to the Indian economy- which is always a good thing- keep watching this space for more exciting developments in the future. This definitely means that brands will assess creator profiles much more closely before shortlisting on creators. In the past, the industry has seen a whole host of brands that bring on several influencers just on a trial and error basis without much discernment about what that creator actually brings to the brand or what they stand for. The trend now seems to be that brands now will be on the lookout for creators who really curate their content well and focus on their respective niche or audiences rather than trying to be ‘one size fits all’ creators. A cutback on spends is expected too, especially if brands need to bear the brunt in terms of additional tax liabilities.
Enough with the chatter- How does all this work?
To summarize in short before we deep dive into this- the 10% TDS only applies if the value of a sales promotion crosses INR 20k on an annual basis.
Who bears the tax is still a bit fuzzy, but fear not- Kreo has compiled a basic guide for you to prepare yourself as a creator:
- The INR 20K limit per year is for each individual brand collaboration: Maintain a clear ledger for each brand that you deal with- Do let us know in the comments if creating a ledger is not something you are comfortable with- we would be glad to help create an easy to use template for you!
- Festivals are exempted!!! Gives you an indication of when to get those gifts- Make the brand your own personal Santa Claus during Christmas!
- Always ask for TDS certificates in case the brand is filing TDS at their end- so you are not liable for the same tax at your end as well.
- Price discounts and rebates are exempt from this tax- Ask brands for a 99% discount! We love this one as it’s such a ‘Kreative’ solution!
- Bill gifts received under different family members and friends- in case you exhaust this limit, we could help you all figure something creative out
Long story short, yep — this could mean that you’d pay TDS if you’d receive an unwanted iPhone- so just be careful of the brands you choose to associate with / the deals you make- you might end up paying the price for them at the end of the financial year!
We would love for you to tell us in case things are still unclear, and would love to help out in any way possible- please continue to pour in the love and feel free to write in to us at Kreo any time at firstname.lastname@example.org.
Creator-contributors: Podapunny.finance, Niraj.