TDS On Free Gifts For Social Media Influencers

In a new provision introduced in the Finance Act, 2022, a 10% tax deducted at source (TDS) is now applicable for benefits or perquisites that exceed Rs 20,000 in a year under Section 194R of the Income-tax Act, 1961 (ITA). This has come into effect from 1st July 2022.

To remove practical difficulties, eliminate issues and provide clarification on the applicability of section 194R, the Central Board of Direct Taxes (CBDT) issued circular No. 18 of 2022 dated 13th September 2022.

Social media influencers will be expected to pay tax for anything they receive and retain for free. However, TDS won’t apply if the freebie is returned to the brand.

In addition, Section 194R applies to all professionals and businesses availing of any benefits or perquisites.

This 10% TDS will be deducted from its monetary value. Additionally, you also have to pay the tax on its value according to your income tax slab. 

In this article, we will discuss about the following:

• Rationale for New Provision Under Section 194R of ITA
• Impact on Social Media Influencers
• Non-applicability
• Tax Implication and Valuation
• Tax Deductions 
• FAQs

Reason For New Provision Under Section 194R Of ITA

Earlier, in Section 28 of the ITA, the value of any benefit or perquisite, whether convertible into money or not, had to be included in the taxpayer’s total income and taxed under the head ‘profits and gains from business or profession’. However, in a few instances, the taxpayers did not report the receipt of the benefits in their income tax return. This would result in the furnishing of incorrect particulars of income. Section 194R of the ITA has been introduced to eliminate such discrepancies.

Impact On Social Media Influencers

Social media influencers are offered products by various manufacturing companies to promote them on digital platforms. Any such freebies or benefits and perquisites in cash or in kind, such as a car, television, computer, gold coin, mobile phone, foreign trips, and free tickets for events given to promote sales, will require taxes to be deducted accordingly under Section 194R of the ITA. However, if such products are returned to the manufacturing company, then they will not be treated as a benefit or perquisite.

All these freebies, benefits, and perquisites will have to be disclosed while filing the income tax return, adding that it shouldn’t be avoided based on the fact these items are not being sold. 

For instance, let’s consider a travel vlogger who takes a flight for a sponsored trip. The company reimburses the flight ticket for Rs 30,000 and provides him/her with a free stay, which otherwise costs Rs 20,000. Further, the company is also giving him/ her money for promotion. The company will give that money after deducting tax of Rs 5,000 from Rs 50,000 (Rs 30,000+Rs 20,000).

Similarly, if a company gives a mobile phone as a review unit to a social media influencer and he/she keeps it, then it will be considered a benefit, and TDS will be deducted from it. 

Non-Applicability Of Provisions Of Section 194R

The provision of Section 194R is not applicable if:

• The benefit or perquisite value in the financial year does not exceed Rs 20,000
• If the recipient is a non-resident, tax shall be deducted under section 195
• The turnover from business in the preceding year is less than Rs 1 crore or total receipts from profession do not exceed Rs 50 lakh of the person providing the benefit or perquisite.
• Section 194R does not apply to employees who receive benefits from their employers; section 192 will apply to them. When there is no business relationship, this section will not apply.

Taxability And Valuation Of Benefits And Perquisites

The person providing any such perquisite shall deduct TDS at 10%, irrespective of whether it is taxable in the hands of the recipient. It is not even required to check under which Section it is taxable.

Additionally, even where the benefit given is a capital asset such as a car or an immovable asset like land, tax under Section 194R is held to be deductible.

Section 194R requires tax deduction regardless of the nature of the benefit provided, whether such benefit is in cash or in kind. In this regard, Section 194R states that if the perquisite is wholly in kind or partly in cash and partly in kind, and the cash component is less than the amount required to be deducted, the person or company responsible for providing the perquisite must ensure that tax has been paid before releasing such perquisite.

The valuation of all perquisites received partly or wholly in kind would be based on a fair market value (FMV). An exceptional case would be where the benefit provider has purchased or manufactured the perquisites. In that case, the purchase price or the price that is charged to customers will be taken as the value of the perquisite.

Tax Deduction For Social Media Influencers

If TDS is not deducted by the responsible person or company, then they have to ensure that the tax required to be paid on such benefit or perquisite has been deposited by the recipient in the form of an advance tax.

The responsible person or company can rely on the following documents provided by the recipient or social media influencer, confirming the tax required to be deducted on benefit or perquisite has been deposited:

• A declaration
• A copy of the advance tax challan

As part of the reporting process for such transactions, the government has included provisions in Form No. 26Q for such transactions with effect from the financial year (FY) 2022-23.

An alternative solution is that the responsible person or company deducts TDS on the provided benefit or perquisite and deposits the same to the government. Any disclosure of such deduction needs to be made in Form No. 26Q of the TDS return.