CBDT's TDS Rule For Influencers Invites Mixed Reactions

While one school of thought believes this move to draw a clearer expectation between the two parties and further streamline the newer systems, others feel it will only create more chaos

We open our social media apps and a stout wave of influencers going gaga over big and small products hits us. This has often put them under the questionable radar- of whether their content should be received as completely authentic and reliable or not. Typically, influencers make their money with the size of their audience, the brands they associate with, the rate of success of their promotional content, etc. However, with the recent guidelines by The Central Board of Direct Taxes (CBDT) in play, will they continue to enjoy their vantage position or lose their shine?

To elaborate, the guidelines ply 10% TDS provisions, which will come into effect from July 1, regarding benefits received by social media influencers. They instruct influencers to no longer accept corporate freebies in exchange for brand promotions. It looks like this move by CBDT has been initiated to widen the tax base. 

Let's see what the industry experts have to say on this:

Shuchi Sethi, India Lead, AnyTag feels that this could potentially destabilise the whole industry. “For instance, PR is a big part of the influencer industry. Influencers create a resonance with the brand only when they talk about a product after receiving the package sent to them as a gift through a PR professional. The whole idea of influencers being advocates goes for a toss if they have to pay TDS for a free gift. It puts the whole transactional value into an aspect even if the influencer likes the product and talks about that gift that was sent to him/her.

Giving us a first-hand perspective, Varun Duggirala, Content Creator, Podcaster & Entrepreneur asserts, "The idea comes from the right place but the system needs to be thought through. The regulation of any industry as it grows is expected and this move is largely in line with that. However, for any regulation to work the system or process needs to be in line with how these transactions happen in reality, and therein lies the concern with this announcement. The creator space is still largely chaotic and this can very easily add to the chaos rather than help in systematising it."

However, Ankita Chauhan, Director-Strategy, Tonic Worldwide shares that the implication of taxes on the freebies received by the influencers should not have a major on-ground impact on the influencer activities. "As social media and related businesses continue to grow, the changes in the regulations and policies are going to be inevitable. But of course, all the parties – brands, agencies and the influencers will have to be mindful of this amendment. Steps like these are only going to help make the business more accountable and structured. Since this is only applicable to certain business sizes and values, it should not disincentivise anyone,” she says.

Even Kishore Sinha, Co-founder and COO, ClanConnect anticipates this move to act as a tailwind for the industry. "The government recognising the influencer marketing space as a mainstream business worthy of regulation is a positive development for the entire industry. While most industry players are currently uncertain about the details, it’s going to have a positive impact in the long run. There will be minimal impact on micro and nano influencers who will continue to work on barter and paid collaborations on a scale that isn’t taxable.

The only big difference will be that brands that currently offer such freebies will minimise making payments in kind and prefer cash transactions,” he marks.

Rajni Daswani, Director - Digital Marketing, SoCheers agrees that free goodies sent to the influencers indeed generate substantial PR for the brand. But they’re also a little one-sided, with the influencers having less to no say in whether they would be interested in receiving the freebies. "It is an opportunity to curb the cost to the environment and reduce waste. The new rule, I believe, will allow for a more respectful understanding relating to being fostered between the brands and the influencers. 

Just like the past regulations of declaration of sponsored content, these guidelines too will become a part of the working process between the parties, we anticipate.