Introduction:
Social media influencers somewhat play a key role in the growth of a country’s economy. Social media platforms are evolving at a tremendous pace and have become important to us, every action of an influencer is followed by their audience. Traditional advertising has gotten a boost thanks to social media. People directly connect to the influencers and the trends they set or try to set. The modern approach to stay informed about current events, changing trends, and new items are to use social media. With face-to-face marketing interactions being limited due to the Covid-19, marketers had to come up with new ways to get their message across and form stronger bonds.
Social-Media Influencers
With the rise of influencer marketing, the distinction between what constitutes an “advertisement” and what does not has been modified. People generally think that someone who has a huge number of followers on a social media platform is an influencer, but it is not so, it is wider than we think. An influencer or a social media influencer is someone who creates content, promotes, uses, advises, and is a trendsetter for various products, brands, and services. They have the ability to influence product purchases by reviewing them. They are also called the future of advertisement.
People are attempting to make a full-time career out of leveraging YouTube, Instagram, and other social media platforms to interact with a huge percentage of the public.
Simply, Influencers are people who have built a following on social media by sharing information that motivates, amuses, informs, and engages them with their fans. Influencers can use this direct line of contact to start social conversations, create engagement, and set trends among a responsive and socially active audience. They consist of YouTubers, bloggers, Instagrammers, Facebook, Snapchat, and Reddit influencers, etc. Working with social media influencers has been shown to help brands sell their products and services to a larger audience.
Celebrities are often included in the category of influencers as they have a large audience and can significantly impact and influence the reach on such platforms. Influencer marketing has emerged as a crucial component of a company’s overall marketing strategy, as it is considered a cost-effective way to reach out to a target demographic and raise awareness. Influencers are divided into two groups: content developers and life casters. Content developers produce vlogs and blogs, as well as content for other social media platforms such as Instagram. Lifecasters, on the other hand, promote and disseminate information from a life they enjoy. There are numerous sections within the content creation area. Bloggers may create content regularly and promote them on social media. Vloggers usually have a YouTube channel where they post about and publish stuff related to their interests. There are numerous sections within the content creation area. Bloggers may write content regularly and promote them on social media.
The diversity of platforms available on social media have evolved throughout time in response to user behavior and expectations. Whether it’s YouTube, Instagram, Facebook, Snapchat, or TikTok, influencers have a variety of options for creating, publishing, and consuming content, as well as engaging with an audience, on these social media platforms. The definition of an influencer is susceptible to change as the social media landscape evolves, and all elements must be considered when identifying social media influencers.
How are Social-Media Influencers Taxed?
Social Media Influencers are taxed in the same way that any other person or company who earns money is. Income gained from YouTube or sponsored collaborations is deemed “Income from the Profession,” and as a result, tax is applied according to the slab rates as per the provisions of the Income Tax Act. The majority of bloggers make money through AdSense, which acts as a facilitator between brands and bloggers. Individual and corporate influencers get monetary or in-kind compensation from social media sites and platforms in exchange for services rendered, as well as any other activity carried out on such platforms. Unless exempted under the Tax Code, as modified, and other legislation, these people must pay income tax and company tax (either a percentage or a value-added tax).
They are taxed in two major forms that are the Goods and Services Tax and Income Tax. There are various sources from which an influencer earns and it includes – Brand endorsements and advertisements, Receipts from Youtube (Based on views and engagement), Video production, design, and SEO & optimization consulting services, Affiliate marketing, and other sales channels generate revenue.
For tax reasons, influencers who are not firms or partnerships are classified as self-employed individuals or persons engaged in trade or business as sole proprietors. Since influencers provide services on some of the other social media platforms, the Income Tax Act’s standard provisions apply. The profits of individual influencers are taxed at the prevailing slab rates. If gross receipts for a fiscal year surpass one crore, a tax audit is required. The provisions of TDS(Tax Deducted at Source) will also apply to the Influencer if he or she receives payment. This means that before making payments to them, the tax will be deducted at the rates outlined in the Act, which can be claimed as a tax credit when filing your income tax return. The limit has been raised to Rs. 10 crores if not more than 5% of all payments and 5% of all revenues in that financial year are made in cash. Payments to influencers may be subject to tax deducted at source (TDS) under section 44AB[1] of the Income Tax Act of 1961. The nature of the service supplied or the type of transaction conducted will determine the TDS rate.
As the income is treated as the income from profession and the taxes are levied at slab rates, the income tax is generated in two ways:
- From business and Profession
All revenue and expenses are taken into account, and the net profit is deemed taxable income. Disallowances, exemptions, deductions, and other provisions of the Income Tax Act apply. If the declared income is less than 50% of gross revenue, a tax audit is required under the Income Tax Act. - Under Presumptive Scheme
Residents with total gross receipts of less than INR 50 lakh during the financial year are eligible. The IRS considers 50% of gross receipts to be taxable income. This income is not eligible for any additional deductions.
But under Section 37 of the Act,[2] The expenses are allowable and adjusted against the gross receipts, which are the expenses incurred in the normal course of business like travel expenses and various bills, marketing or promotions, acquiring of assets (laptops, cameras, accessories) – a depreciation can be claimed.
Under the IGST Act of 2017, the services provided by the influencers shall be considered as Supply under GST. In terms of GST law, YouTubers, influencers, and bloggers’ services are classified as Online Information and Database Access or Retrieval Services (OIDAR). To put it another way, these are services that use information technology to distribute data through the internet or an electronic network.[3]
Under Section 22(1), If a YouTuber or influencer’s annual revenue surpasses Rs.20 lakh, or Rs.10 lakh if they are headquartered in a special category state, they must register for GST. If a service is supplied to a registered recipient in a state other than the YouTuber or influencer’s, registration is required regardless of overall revenue.
Services provided by GST-registered influencers are subject to an 18% GST rate. Depending on whether the supply is intrastate or interstate, 9% each of Central Tax(CGST) and State Tax(SGST) is levied, or 18% of Integrated Tax(IGST) is imposed. When it comes to the export of services, the GST rate is zero percent.[4] There are two ways for influencer exporting services to export their services. 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 adverts broadcast on platforms like Google Inc. and Google AdSense, which the majority of people use because the recipient of services is located outside of India.[5]
All GST-registered influencers are expected to file the same returns as other businesses, which include GSTR-1, GSTR-3B, and GSTR 9. (annual return). In addition to paying taxes and penalties, social media influencers who wilfully seek to escape payment of taxes, file tax returns, provide accurate information, or pay tax will be held criminally accountable.
Conclusion
Social networking is unquestionably the future of marketing. The profession of an influencer is evolving in response to changing societal requirements, and the tax system should follow suit. Influencers have a tremendous impact on the thoughts, views, and purchasing patterns of people. The Indian government implemented GST in 2017 and made every effort to make it as comprehensive as possible in order to cover all business activities.
References:
[1] The Income Tax Act, 1961, § 44AB, No. 12, Acts of Parliament, 1962 (India).
[2] The Income Tax Act, 1961, § 37, No. 12, Acts of Parliament, 1962 (India).
[3] The Integrated Goods and Service Tax Act, 2017, § 2(17), No. 13, Acts of Parliament, 2017 (India).
[4] The Integrated Goods and Service Tax Act, 2017, § 16(1)(a), No. 13, Acts of Parliament, 2017 (India).
[5] The Integrated Goods and Service Tax Act, 2017, § 13 & 13(12), No. 13, Acts of Parliament, 2017 (India).
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