Social Media Influencers, Collaborations, and Brand Partnerships – Tax implications

1. Introduction

Influencer marketing is a term we often hear, but what exactly is it? It is a form of marketing that involves collaborating with "social media influencers" to promote products or services on social media.

Social Media Influencers have emerged as influential individuals who can shape consumer behaviour and influence their purchasing decisions. These individuals leverage their online presence and large followings to promote brands, products, and services, and in return, they earn substantial incomes.

In recent times, India has experienced a remarkable shift in its digital and social media landscape. Initially introduced as a means to stay connected with friends and family, Social Media has evolved into a powerful tool for staying informed about current affairs, trends, new products and services.

A decade ago, influencer marketing was confined primarily to celebrities. Today, social media influencers have proliferated and saturated the market. YouTube, Instagram, Facebook, Twitter, and other social media platforms have opened up countless opportunities for influencers to endorse products and services spanning fashion, cosmetics, lifestyle, travel, and tourism.

Unsurprisingly, you may have subscribed to numerous YouTubers who offer distinctive life lessons, book or movie reviews, business case studies, and many more.

With the global growth of influencer marketing, India is experiencing swift momentum in this emerging sector. In 2022, marketing expenditure on influencers in the third-largest Asian economy reached approximately $400 million, and experts project that it could escalate to $8 Billons by 2030¹.

This article aims to shed light on the taxation landscape for Influencers deriving income through social media platforms.

2. Scope of income, chargeability and deductions

Influencers generate substantial income through collaborations, brand partnerships, endorsements, and sponsored content. Collaboration or brand partnership involves a mutually beneficial relationship between an influencer and a brand.

The nature of collaborations and brand partnerships can vary widely. It can involve sponsored content, where influencers promote a brand's product or service in exchange for compensation. It can also entail long-term ambassadorships, where influencers become the face of a brand, representing it over an extended period.

They promote products/services by sharing purchase links or discount coupons. Influencers earn a part of the revenue as a reward when someone buys a product using their link or coupon. Influencers may also receive products from companies for which they are doing promotions. In most cases, the companies do not take back these products after the end of the promotion.

Plus, influencers also monetize their content through ad placements on platforms like YouTube or through ad networks on blogs and websites and get a share of ad revenue from social media platforms.

All these income earned by influencers, including the value of products retained by them, are taxable under the Income-tax Act 1961.

2.1. Chargeability of income

A Social Media Influencer shall be considered a sole proprietor unless he registers his business as a company, LLP or Partnership Company. He is considered a self-employed individual, and his taxation follows a similar framework as other self-employed individuals. His income shall be taxable under the head of 'Business or Profession'.

Section 28 of the Income-tax Act ('Act') lists all receipts and incomes that are chargeable to tax under the head business or profession. All profits and gains earned from a business or profession shall be taxable as per the accounting method followed by the him.

2.2. What if a social media influencer is minor?

As social media is available to people of all ages, we see that even children are getting involved as social media influencers. This raises a concern about how to tax the money they make from these activities. If these children are under 18 years old, we need to check how income clubbing rules apply to them.

As per Section 64(1A) of the Act, in computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child, not being a minor child suffering from any disability of the nature specified in section 80U.

The section also clarified that nothing shall apply in respect of such income as arises or accrues to the minor child on account of any:

(a)		Manual work done by him;
(b)		Activity involving the application of his skill, talent or specialized knowledge and experience.

Minor social media influencers earn income as a result of their applied skill. Thus, the provisions of clubbing of income may not apply. Hence, such income will be subject to taxation in their own hand if it exceeds the basic exemption limit chargeable to tax.

2.3. Benefit or perquisite enjoyed by influencer

Section 28(iv) provides that the value of any benefit or perquisite arising from business or the exercise of a profession, whether convertible into money or not, or in cash or in kind or partly in cash and partly in kind will be chargeable to tax under the head "Profits and Gains from Business or Profession".

If the product given to the social media influencer is retained by him post such promotion, then it will be in the nature of benefit or perquisite. Similarly, if the influencer receives any services, then it shall be a benefit or perquisite.

For example, a fitness centre partners with an online fitness influencer to promote personal training services. The centre offers him complimentary personal training sessions for collaboration. The free personal training sessions offered to him are considered a benefit or perquisite. Accordingly, the value of personal training sessions will be subject to tax in his hands under the head of "Income from Business or Profession".

However, if the social media influencer returns the product to the entity after using it for rendering his services, then it will not be regarded as a benefit or perquisite².

2.4. Meaning of Benefit or Perquisites

Section 17(2) of the Act provides an encompassing definition of the term "perquisite" for the purpose of salary. However, the Act does not define the usual connotation of "perquisite." In general, a "perquisite" refers to incidental benefits, fees, or profits associated with a particular position or office, including any supplementary additions to salary or wages.

Further, the term 'benefit' is not explicitly defined in any section of the Act. However, 'benefit' generally refers to an advantage, profit, fruit, or privilege. If a person experiences any form of advantage, it can be considered that it is a benefit. Similarly, if a person acquires something of value, whether, in monetary or non-monetary terms, it can be deemed a benefit.

It is important to highlight that in order for a benefit or perquisite to be considered within the scope of Section 28(iv), it must be derived from the influencer's business or professional activities.

If a benefit or perquisites does not fall under section 28(iv), it shall be taxable under the head of 'other sources' as per the provisions of section 56.

2.5. Allowable expenses

A social media influencer can claim all expenses incurred while performing his services. For example, travelling expenses incurred for vlogging, hotel bills, internet bills, electricity bills, video editing charges, etc. Further, he can also claim costs incurred in marketing and promotions.

Capital goods like laptops, cameras, and business-related accessories are not considered revenue expenses. Only depreciation can be claimed on these assets under Section 32 of the Act.

3. TDS provisions on influencers

To curb the practice of taxpayers not reporting benefits or perquisites as income, the Finance Act 2022 introduced provisions for the deduction of tax at source (TDS) under Section 194R under the Act.

Section 194R provides that any person responsible for providing any benefit or perquisite to a resident person, whether convertible into money or not, is required to ensure that the tax required to be deducted has been deducted at the rate of 10% in respect of such benefit or perquisite.

It is to be noted that the tax deduction is required only if the benefit or perquisite is made available to a resident person. The deductor can be a resident or a non-resident person. The section casts the responsibility of tax deduction on any person responsible (whether resident or non-resident) for providing such benefit or perquisite.

3.1. Threshold Limit and TDS rate

Tax is required to be deducted if the aggregate value of the benefit or perquisite provided or likely to be provided during the financial year exceeds Rs. 20,000. If the value of the perquisite exceeds Rs. 20,000, the tax will be deducted from the entire value of the benefit or perquisite, not just the amount exceeding Rs. 20,000.

3.2. Manner of Tax Deduction if benefit/perquisite is in kind

In cases where the benefit or perquisite is provided in kind, entirely or partially, and the cash portion is insufficient to cover the tax deduction liability for the entire benefit or perquisite, the person responsible for providing such benefit or perquisite must ensure that the necessary tax deduction has been paid in relation to the benefit or perquisite.

3.3. Valuation of the Benefit/perquisite

With respect to the valuation of benefit or perquisite, the CBDT has prescribed that the valuation would be based on the fair market value of the benefit or perquisite except in the following cases:

(a)		The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the influencer. In that case, the purchase price shall be the value for such benefit/perquisite.
(b)		The benefit/perquisite provider manufactures such items, then the price that it charges from the customers for such items shall be the value for such benefit/perquisite.

4. Other compliances

4.1. Reporting obligation under Section 285B

Section 285B requires that any person carrying on the production of a cinematograph film or engaged in any specified activity is required to furnish a statement of all payments made by him, or due from him, of a sum above Rs. 50,000 in aggregate to each such person as is engaged by him in such production or specified activity.

Specified activity is defined as follow:

♦		Event management;
♦		Documentary production;
♦		Production of programs for telecasting on television or over the top (OTT) platforms or any other similar platform;
♦		Sports event management; and
♦		Other performing arts or any other activity, as may be notified by the Govt.

Section 285B has two limbs: (i) Carrying on the production of a cinematographic film (ii) Any person engaged in specified activities. For the second limb, the person can be engaged in any capacity and not necessarily into production.

The provision requires reporting by a person engaged in the production of programs for telecasting on television or OTT platforms or any other similar platform. In general, a platform is categorised as an OTT platform if it offers media services directly to viewers via the internet.

Body of European Regulators for Electronic Communications (BEREC) defines OTT service as "content, a service or an application that is provided to the end-user over the public Internet." The definition of OTT is very wide, which would include every platform that delivers any content, application, services, etc. over the internet. However, for reporting under this provision, it should be limited to production for the OTTs that deliver the programmes. Netflix, YouTube, Amazon Prime, Zee5, etc., are a few examples of such OTT platforms.

Thus, payments made by a YouTuber to a professional photographer, marketing guys and social media manager, etc., shall be reported in the statement.

4.2. Maintenance of books of account

The table below demonstrates the requirement for maintaining books of accounts by different types of assessee. If the assessee exceeds either the threshold of income or gross turnover, he shall be required to maintain the books of account.

Category of Influencer	Threshold Limits
	For Income	For Gross Turnover or Receipts
Individual or HUF	More than Rs. 2,50,000 in any of the 3 years immediately preceding the previous year	More than Rs. 25 lakhs in any of the 3 years immediately preceding the previous year
Others	More than Rs. 1,20,000 in any of the 3 years immediately preceding the previous year	More than Rs. 10 lakhs in any of the 3 years immediately preceding the previous year

4.3. Advance tax liability

Every influencer is liable to pay advance tax if his estimated tax liability for the financial year is Rs. 10,000 or more. The advance tax shall be in 4 instalments on or before the prescribed due dates as specified below.

Due date for payment of advance tax	Advance tax to be payable
On or before June 15 of previous year	Not less than 15% of advance tax
On or before September 15 of previous year	Not less than 45% of advance tax
On or before December 15 of previous year	Not less than 75% of advance tax
On or before March 15 of previous year	100% of advance tax

If advance tax is not paid in accordance with the provisions discussed above, he shall be liable to pay the interest under Section 234B and Section 234C.

Section 210 of the Act also empowered Assessing Officer to issue notice, anytime during the financial year but before the last day of February of the relevant financial year, asking influencers to pay advance tax.

4.4. Presumptive taxation

Section 44ADA is a presumptive taxation scheme applicable to a resident Individual or Partnership Firm (other than an LLP) engaged in the specified profession. The specified profession is defined under Section 44AA, which are as follows:

(a)		Legal
(b)		Medical
(c)		Engineering
(d)		Architectural
(e)		Technical Consultancy
(f)		Interior decoration
(g)		Film artist
(h)		Authorized Representative
(i)		Accountancy Profession
(j)		Company secretary
(k)		Information Technology

Any profession other than the professions specified above shall not be eligible to opt for this scheme.

Since a social media influencer does not fall under any of the above categories, he shall not be eligible to claim the benefit of section 44ADA.

4.5. Audit of accounts

Social media influencers should be treated as engaged in a non-specified profession. Thus, they shall get the books of accounts audited if their gross receipts during the relevant previous year exceed Rs. 50 lakhs. The tax audit report needs to be furnished in the following forms:

(a)		Form 3CA, along with Annexure Form 3CD, if the books of accounts are required to be audited under any other law;
(b)		Form 3CB, along with Annexure Form 3CD, in all other cases.

If any person fails to get his accounts audited or fails to furnish a report of tax audit as required under this provision, the penalty may be imposed under Section 271B. The Assessing Officer may levy a penalty of 0.5% of total gross receipts or Rs. 150,000, whichever is less.

5. Conclusion

In conclusion, the world of social media influencers has become a lucrative space in India, attracting both individuals and businesses to engage influencers for marketing. However, with the growth of this industry, influencers need to grasp the income tax implications to avoid any legal repercussions and ensure smooth financial operations. Collaborating brands and companies must also pay attention to the TDS requirements and ensure proper deduction and deposition of tax when making payments to influencers.