Are you a doctor or a social media influencer? Check how these new TDS regulations will affect you
According to the new regulations, freebies that social media influencers and doctors get as part of sales campaigns and whose value surpasses Rs 20,000 in a fiscal year will be subject to a 10% deduction at source (TDS).
A social influencer with 1.2 million Instagram followers is Masoom Minawala. She receives many things from brands as part of her job in marketing, however, some of these remain in her possession. Some medical samples distributed by pharmaceutical companies are also kept by doctors.
According to the new TDS regulations announced by the Central Board of Direct Taxes, these “gifts” will now be taxed as of July 1. (CBDT). Influencers on social media are increasingly looking for chartered accounts to aid them in the same.
According to Anuradha K. Bhandari and Ashutosh Bhandari, who handle the Instagram account Thegoofyones, “now we will have to understand this taxes process involving the 10% deduction when we partner with any small business or companies.”
According to Minawala, CNBC-TV18, the majority of the presents come from small firms who understand that their product might or might not be highlighted. They would have to reconsider giving, Minawala said, adding that they are seeking advice for greater clarity, “but with additional TDS going out of their pockets.”
What are the new regulations?
Section 194R of the Finance Act of 2022 imposes a 10% tax deducted at source (TDS), exclusive of surcharge and cess, on freebies exceeding Rs 20,000 that influencers and doctors receive and retain from sales promotions.
According to Shubham Sharma, head of the legal consulting business SRS Associates, “Influencers and doctors would now have to file tax in advance if the value of freebies they receive surpasses Rs 20,000 in a year.”
Examples of freebies where tax will be deducted in accordance with section 194R are provided in the guidelines. These include monetary rewards, gifts in the form of cash, automobiles, televisions, computers, or other technology, clothing, jewelry, gold coins, and TVs. They also include sponsored trips and free event tickets.
How will the government stop tax leaks?
Any such costs made by a corporation would need to be recorded in its books, according to Ashish Sodhani, Leader, International Tax Advisory & Litigation at the legal firm Nishith Desai Associates.
According to Sodhani, this would help the tax authorities figure out what was transmitted. It is a personal decision that may be influenced by a variety of factors whether or not to raid them (influencers/doctors). However, examination based on data obtained from the organizations offering the benefits might undoubtedly be a step in the procedure.
According to Sodhani, a procedure with sufficient paperwork may be put in place between the businesses and the influencers or doctors to serve as evidence of whether or not the gifts and benefits were kept.
Will businesses that report receiving such gifts possibly face further scrutiny? According to Sodhani, non-reporting of transactions subject to Section 28 tax led to the addition of Section 194R to the Income Tax Act (iv).
In order to lessen the scrutiny that would otherwise occur, reporting would only be advantageous for the companies.
Why should social media influencers be concerned about it?
The CBDT claims that the case’s specific facts will determine whether the goods provided for promotion is an advantageous or perquisite. According to CBDT, a benefit or precondition will not be considered if a product, such as a car, mobile phone, wardrobe, cosmetics, etc. is returned after being used for the purpose of providing service.
Influencer marketing frequently uses a barter system in which marketers provide free samples or gifts to influencers in exchange for social media posts. Sharma claims that because there is little documentation surrounding these donations, most influencers and physicians who file income tax returns fail to report them.
“The barter system is a simple way for companies to expand and save marketing expenses. An influencer technically works for the brand. Sharma claims that because this counts as a transaction, new rules have been added.
The Bhandaris think that because the issue is unclear, aspiring influencers may “shy away from barter agreements.” Similar worries were also expressed by Minawala.
“For small businesses who cannot afford to invest in influencer marketing, giving is a safe choice. Since my goal is to show their artistry and the market need they’re filling, I come across numerous small brands and feature them, even if it’s merely a barter opportunity. With more TDS, small firms will suffer and startups may not be able to work even on a barter basis due to financial constraints “explained Minawala.
According to Swati Sharma, the founder of the consultancy company F Square Media, the choice will eventually be advantageous to influencers. “So many gifts are wasted when bartering, so it’s not a good idea.
Influencers will now pause before engaging in barter and may even ask brands to pay them what they are due for their efforts, according to the expert.
How do the new regulations affect doctors?
For doctors, CBDT made it clear that section 194R would apply to free sample distribution to a hospital when doctors receive them while working there. The hospital may classify such samples as taxable perquisites for its personnel, and as a result, tax may be deductible under Section 192. In this situation, the Rs 20,000 threshold must be assessed in connection with the hospital, in accordance with the rules.
Sodhani stated that “the company would take an exemption for the same in its books, which would be the premise for the CBDT to ascertain what has been shared with the doctors, to the extent that certain items are provided to doctors in compliance with the Medical Council of India’s code of ethics and the recent Apex Laboratories ruling.”
According to Sodhani, if there are any more items, they cannot be deducted, and it may be difficult for CBDT to determine what has been provided at a glance.
He clarified that the National Medical Commission is now considering a more stringent code of ethics and that a draft of it has already been made public.
In order to be able to claim deductions in their books, corporations may need to reconsider what is allowed under the updated code of ethics read in light of the Apex Laboratories decision, Sodhani added.
Influencers and doctors will need to be careful before accepting any free gifts and will need to declare adequately in case they don’t want to turn into tax evaders as these new laws take effect on July 1 despite the murky areas.
How are social media influencers and freelancers taxed in India?
Taxes must still be paid even if you work as a freelancer. According to India’s income tax regulations, freelancers must pay taxes on their income just like salaried and professional taxpayers.
The Income Tax Act defines revenue from a vocation as an income obtained through the practice of one’s intellectual or manual skills. Due to the fact that this revenue is recognized as self-employment earnings, it is referred to as “profits and gains from business or profession.” The total revenues a person receives while practicing their vocation add up to their gross earnings.
Social media influencers are furthermore subject to income tax under the category of “earnings and gains from business and profession,” in addition to freelancers.
To file an income tax return, a freelancer must choose between ITR-3 and ITR-4 (ITR).
The same ITR form that is used by businessmen or professionals must be chosen by salaried individuals who earn additional income throughout a fiscal year from freelance work done outside of their job.
Freelancers can deduct from their firm income the costs necessary to complete the freelance work. These costs will include rent for the property the freelancer uses to carry out the work, costs associated with maintaining that property, costs associated with maintaining electronic equipment, such as a laptop or desktop computer, used for work, money spent on office supplies, utility bills, such as internet and phone, travel costs associated with the job, transportation costs, and the depreciation value of equipment, such as a laptop.
When filing an ITR, freelancers are not eligible for the standard deduction of Rs 50,000. However, if they choose the old system of taxation, people who work both paid jobs and freelancing jobs can deduct standard expenses from their salary income.
However, in order to deduct expenses, freelancers must make sure that they were incurred during the tax year and were directly related to the employment.
The taxpayer must calculate their total taxable income by adding all of their sources of income together and subtracting all of their expenses.
Before paying freelancers, employers would occasionally deduct TDS. So, while calculating the tax liability, the TDS should be taken into account.
Freelancers who have a net taxable income of at least Rs 10,000 must pay advance tax each quarter by the due date.
Social media influencers
Influencers on social media who make money from sponsorships and advertisements are taxed similarly to independent contractors. Influencers are regarded as self-employed people who are involved in trade or business for tax reasons if they do not fit under the company or partnership category. The current tax rates apply to their income.
Influencers and bloggers must register their services under the Goods and Services Tax (GST) law if they earn more than Rs 20 lakh in a fiscal year or Rs 10 lakh by residing in a special category state. This is so because the online information and database access or retrieval services (OIDAR) sector is where bloggers, influencers, and YouTubers get their money from. Under GST, services are billed at a rate of 18%.