How The New TDS Rule Will Change Influencer Marketing?

Did you ever want to become a social media influencer just because you found the idea of free products and sponsored trips so exciting? If you are a regular user of social media platforms like Facebook or Instagram, you must have come across many accounts of influencers who promote all kinds of products, from sunglasses to night creams. Influencers usually get to keep a lot of the products. Well, it is not the case anymore. Starting July 1, influencers will soon have to pay TDS for the freebies they receive from brands. What is the new TDS rule? The Finance Act 2022 has added a new section 194R in the Income-tax Act from July 1 2022. This new section requires a person providing any benefit or prerequisite to another person for their business to deduct tax at the source of 10% of the aggregate value of the benefit or prerequisite. However, TDS will not be applicable if the aggregate value of the benefit from the brand is less than Rs. 20,000 in a year or if the products are returned to the brand after promotion. Social media influencers used to get benefits as there was no avenue for the government to track the provision of these benefits as it was not reported in the income tax filing. So, to amend this gap, the tax authorities have introduced this new section. Impact of the new TDS rule The new rule will affect many micro-influencers negatively as they mostly only do barter associations: promoting the brand?s products in exchange for the freebies. This is how they build relationships with these brands while creating a base in the field. It will also impact tech influencers as they usually get to keep the gadgets they review. Similarly, travel influencers used to promote in exchange for flight or hotel tickets. Now, both the brands and the influencers will have to track these exchanges in detail. How will this make social media more reliable? Before, influencers were promoting brands left and right. The main aim of many social media influencers was to increase reach and remain relevant. So, whether they performed research on the product before promoting it was not guaranteed. One day they would be advocating for one brand's product, and the next, they were promoting the competitors' products. Hence, no oversight was provided for how they operated- this caused a lack of accountability. In today?s growing social media advertising scenario, people spend hours scrolling and clicking past these promotions. Their buying decisions, therefore, were highly influenced by many of these influencers, a majority of whom are not credible. With this new TDS rule, Indian influencers will now be paying taxes on the freebies they receive, making them think twice about whether they want to provide social media marketing services to a certain business or not. How do you think the TDS rule will change the influencer marketing scenario? Let us know in the comments below.