Why influencers paying TDS in India might make social media more reliable

Now social media influencers are like the rest of us. They will get paid only after the TDS. As per the latest Central Board of Direct Taxes (CBDT) guidelines, influencers will now have a 10 per cent tax deducted at source (TDS) if they retain the product given to them for sales promotion. However, if they return the device to the company after the job is done, TDS will not be applied to the product.

If you open any social media app today, whether that be Instagram or TikTok or Twitter, you’re most likely going to find a swarm of endless products being advocated for by social media influencers. Whether it’s a pair of sunglasses you’re looking for or you’re in need of new face cream, you’ll find everything, small and big, being promoted by influencers on their glamorous-looking pages. Influencers get to keep a lot of the products they promote, and India has decided to tax them for these products, which might shed more light on the murky waters of social media.

The role of influencers

If you’re unversed with the term ‘influencers,’ in general, they’re a community of online personalities who promote products and services to a wider audience. Because of their digital presence and reputation, they’re largely responsible for impacting their followers’ purchasing decisions. They typically partner with different brands to create content in the form of posts, stories, or videos to advertise the products and services of the companies they work with. This helps them build their own personal brand, which increases future sales and customer loyalty for a business.

An influencer’s salary depends on the size of their audience on their social media pages. The number of brands they partner with coupled with the rate of the success of their sponsored or advertised content also plays an important role in deciding their income. In India, micro-influencers, who have a social media following of 5-10,000 people, get paid an average of Rs. 6,500 per post. Content creators with 50,000 to 80,000 followers usually charge about Rs. 14,800 per post, while those with 250,000 to 500,000 followers receive around Rs. 49,700 per post.

Besides getting paid for promoting someone else’s products, many times, influencers get to keep the products they showcase, as well. In fact, the influencer economy is driven by the promotion of free products. From clothes to bags to skin care products to vacations to front row seats at a fashion show to first-class flight tickets, influencers receive all such kinds of benefits. And, now, India has decided to put a brake on this free right.

India’s TDS rule and what that means for influencers

Besides doctors, who receive free medical products from pharmaceutical companies, social media influencers are among those who will be subject to a new rule that mandates a 10 per cent TDS on anything free they receive from brands for sales promotion. This rule is expected to begin on July 1st. It’s a part of the Finance Act of 2022, which aims to widen the tax base. TDS will not be applied if social media influencers return the product they promote online to the brands.

“This new provision will ensure that those individuals, who are getting benefits from such sales provision expenditure by different businesses, report it in their tax returns and pay their tax on all those benefits which are worth and not retained back. This will in turn save these businesses from opening up a lot of practical issues with their return, for which they have not braced themselves,” Moiz Rafique, Managing Partner, Privy Legal Service LLP, said.

The influencer market

The global influencer market is worth approximately $13 billion, and it’s expected to grow to $16 billion by the end of this year. In India alone, the creator market is worth $120 million. This growth is being accelerated by the digital pivot, which refers to the new way of doing business through online marketing. Many claims that the digital pivot is indispensable to business survival.

As a result, businesses today have adopted a new marketing strategy known as ‘social first,’ which means that brands prefer influencers when it comes to promoting their products, even over celebrities. While influencers charge relatively less compared to celebrities, they have also proven to be more effective salespeople, which only helps businesses. One study found that 3 per cent of consumers would consider purchasing a product if it’s sponsored by a celebrity. On the other hand, 60 per cent of buyers will be inclined to buy it if an influencer promotes the product.

Relationship between influencers and consumers

It’s this trust that individuals place in influencers that can become risky. Influencers constantly shuffle between the products they promote. For instance, on one day they are seen promoting one face cream by one brand. And right the next day, they’re seen vouching for another face cream by a different company. Currently, there is no oversight provided for how influencers operate, which can cause a lack of accountability.

For many influencers, remaining relevant and increasing their reach becomes their primary goal. Whether they thoroughly research the product they are promoting can’t be guaranteed. A report from 'Influence.co' found that on average 61 per cent of respondents believed that influencers must research the product or services they’re sharing on their platforms. 62 per cent of people also said that it was unethical for influencers to promote products they didn’t use in real life.

In today’s extremely digital age, people are constantly seeing products as they spend hours on their devices scrolling and clicking past paid promotions. They’re getting more prone to base their buying decisions on influencers, many of whom aren’t credible.

“The question is not so much whether the content can be trusted, but whether the medium can,” James R. Bailey, a professor of leadership at the George Washington University School of Business told Forbes. “Surely the content can’t be trusted. The content — authored by untrained, often anonymous — sources is based on hearsay and is rife with swaggering opinions. As such, it is almost entirely unverifiable and un-credible.”

About 200 million people call themselves influencers today. That forms the population of some of the most populous countries in the world. The question of reliability comes to mind when one realizes that there’s no qualification needed to promote other businesses' products and services. One can simply pick up a phone, click a picture and post it for the consumer market to get influenced. And sometimes a line needs to be drawn. During the beginning of the Covid-19 pandemic, the influencer market became the catalyst for spreading misinformation about vaccines. Moreover, research shows that 21 per cent of teenagers turn to social media influencers to receive health advice rather than visiting a health professional. This has emerged as a leading cause of eating disorders in young people. This list could go on and on, and the need for clarity in this grey area is pressing.

Indian influencers now paying taxes on the freebies they receive will make them think twice about whether they want to collaborate with a business and promote a product because that product will now come at a price for them.