Do Social Media Influencers Pay Tax?
How are free gifts and brand collaborations taxing for the influencers?
The ever-increasing popularity of social media has created the Era of Creators (sometimes fondly referred to as "influencers").
Someone sharing mouthwatering recipes on YouTube or someone giving fashion advice on Instagram or someone else recommending books on Twitter, these 'influencers' influence our choices in one way or the other.
Their life looks dreamy and their content, effortless.
But a lot of effort goes into getting viral. It is a full-time job. No kidding!
Now, even influencers are people and have mouths to feed. So how do they really make money?
> Close your eyes and think, how many times have you seen your favourite creator tell you about the awesome features of a brand that they have been 'using'. These brands compensate these influencers to endorse their products or services by 'collaborating' with them.
> But, not every collaboration is a paid promotion. Sometimes, brands or small businesses gift products to influencers with the hope that they will share a post about it. While it is not mandatory for them to post, influencers usually share a post as a goodwill gesture.
> Sometimes when brands don’t have enough cash to spare but have a super useful product, they will enter into a barter collaboration with influencers. Instead of offering money for a post, brands send their products to the influencer and in exchange, ask for a post.
> we all have come across ads between YouTube videos of our favourite creators, no? Yeah, ad revenue is another popular source of income.
Ahh, now you recall? You must have bought something or the other after being influenced by someone on the internet. Admit it, at least once!
But hey, there is one aspect to this that influencers often tend to ignore.
If someone is earning an income, it is obviously subjected to income tax, right?
So, it makes sense for influencers to report their income and pay tax based on the rates applied to them.
But, what about the free gifts or the barter collaborations where there is no transfer of money? Does that also attract tax?
Yes, it does.
The influencer marketing industry is valued above Rs. 3,000 crores and it is impossible that the government wouldn't want a slice of this.
If an influencer receives a free gift, they have no obligation to post and are free to use the product without anything in return. This is why the entire value of the product will be subjected to tax.
In a year, if an influencer receives free gifts worth Rs. 50,000 or less, these gifts will not be taxable. However, if they receive gifts worth above this threshold, let's say Rs. 60,000, then the entire Rs. 60,000 will be subject to tax.
What about the barter collaboration method? Does that also attract tax?
Yes it does. The value of free goodies or services is considered as an influencer's revenue and the content that the influencer creates around these goodies is considered as the service the influencer provides.
Income - Expenses = Profit
This profit is what is taxable.
So if an influencer gets products in exchange for posting about it, what could they claim as 'expenses' to lower their taxable profit?
They should closely keep a track of the kind of expenses they incur to create a post. Let's say they spend Rs. 1,000 to get their pictures edited by a professional, they can then count it as an expense.
Therefore, it becomes essential for all influencers to keep track of their income and expenses, both monetary and non-monetary.
Influencer tax is extremely diverse and personalised to each person. If you're an influencer, keep track of these minute details. It will make your life as well as the life of your tax advisor very, very easy.
Doing taxes might not be fun. But knowing about them can help you save you a lot of money!
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