Tax Implications on Social Media Influencers and its Calculation
Social media influencers generate a big number of followers by regularly posting on their preferred platforms, such as YouTube, Instagram, Facebook, and Snapchat. Influencers are taxed in the same manner as any other individual or organisation that earns money. Influencers, other than companies and partnerships, are classed as self-employed individuals, or persons engaged in trade or business as sole proprietors for tax purposes.
Influencer earnings are typically regarded as company earnings that are subject to standard income tax, with the exception of those that are subject to a final tax, or are excluded from taxation under existing rules. Any amount received, whether in monetary forms or others — from YouTube partner programs, sponsored social and blog posts, display advertising, for becoming a brand representative or an ambassador, affiliate marketing, co-creating project lines, promoting own products, photo and video sales, digital courses, subscriptions, e-books, podcasts, and weblogs — are all examples of business income that are subject to regular income tax. With increase in the level of creativity, the above-mentioned forms of advertisements tend to transform.
Earnings of influencers are subject to income tax under the heading “Profits and Gains from Business and Profession.” Individual influencers’ earnings are taxed at current slab rates. Influencers who earn more than Rs.1 crore in gross total revenue in a financial year are subject to a tax audit of their books. If not more than 5% of all payments as well as 5% of all receipts in that financial year are made in cash, the maximum has been raised to Rs. 10 crores. Tax deducted at source (TDS) may apply to payments given to influencers under the Income Tax Act. The TDS rate will be determined by the nature of the service provided or the type of transaction made (TaxSlayer).
Under the law regarding the Goods And Services Tax (GST), YouTubers, influencers, and bloggers’ services are classified as Online Information and Database Access or Retrieval Services (OIDAR). To put it another way, these are considered services that use information technology to distribute data through the internet or by means of an electronic network. If any influencer’s turnover exceeds Rs.20 lakh in a financial year, or Rs.10 lakh if they are based in a special category state, they must register under the GST law. GST is charged at a rate of 18% on services provided by GST-registered social media influencers and bloggers.
Depending on whether the supply is intrastate or interstate, 9% each of Central Tax (CGST) and State Tax (SGST) is imposed, or 18% of Integrated Tax (IGST). When it comes to the export of services, the GST rate is 0%. Social media influencers who want to export their services have two options. They can either export services by providing a Letter of Undertaking (LUT) or pay IGST and later claim it as a refund. The supplies are zero-rated in advertisements placed on platforms like Google Inc. and Google AdSense, which is widely used by influencers because the recipient of these services is located outside of India.
You can deduct business expenses from your earnings to reduce your taxable income which will thus bring down your tax payments. Possible examples of what can be deducted as a social media influencer include filming expenses like cameras, microphones and other equipment; subscription and software licensing fees; internet and communication expenses; home office expenses, like rent and utilities; office supplies; business expenses such as, travel or transportation expenses and others. Your expenses are tax-deductible only when they are “ordinary and necessary” for your employment as an influencer.
From understanding the need and importance of social media and influencer marketing to the various taxes and its calculative matrices, the article unfolds the various aspects related to the social media influencer tax. The future of marketing definitely revolves around social media.
(Ruchika Bhagat is the managing director (MD) of Neeraj Bhagat & Co. an ISO 9001: 2008 UKAS certified organization, founded in 1997. Ruchika graduated in 1996, a member of the Institute of Chartered Accountants of India (ICAI) since 1998. She specializes in Business Advisory, Tax, Regulatory and Risk Advisory. She is a strategic adviser in setting up businesses in India for foreign companies and taking care of its compliances.)