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Social media influencers will need to pay TDS on free gifts they receive from July 1

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Social media influencers

Highlights:

  • Social media influencers and doctors will be subjected to a new TDS rule.
  • A section was introduced in the I-T Act which mandates deduction of tax at source at the rate of 10 percent.
  • However, if the influencer returns the product to the manufacturer, it is not taxable.

Coming July, social media influencers and doctors will be subjected to a new rule which mandates a 10 per cent tax deducted at source (TDS) on freebies they receive from businesses for sales promotion. The Central Board of Direct Taxes (CBDT) has listed the rules under the new provision that explains the circumstances in which the new tax deducted at source (TDS) provision will be applicable.

A section was introduced in the I-T Act which mandates deduction of tax at source at the rate of 10 per cent by any person, providing any benefit or perquisite exceeding Rs 20,000 in a year to a resident, arising from the business or profession of such resident. As per reports, the government will levy a 10 per cent TDS on freebies. But, if influencers receive free samples, then they will not be charged any money. CBDT has, further clarified that the nature of asset given as benefit or perquisite will not be relevant for calculation, and that capital assets given as benefit or perquisites will be covered within the ambit of Section 194R

How social media influencers are impacted?

The provision was introduced in the Finance Act of 2022 to widen the tax base and to ensure that those who benefit from such sales promotion expenditure by businesses report it in their tax returns and also pay tax. For social media influencers, paying the TDS amount will be a must if the equipment given for them as part of marketing efforts by a company is retained by the person. However, the CBDT clarified that TDS will not apply if the equipment is returned to the company.

If a social media influencer retains a product like a car, mobile, outfit, cosmetics, etc., after using it to provide a service (promote it on their social media handles), then it will be treated as a benefit/perquisite under the newly-introduced section 194R of the IT Act.

However, if the influencer returns the product to the manufacturer, it is not taxable.

According to the CBDT, Section 194R will also apply on doctors employed in a hospital if they are receiving free samples of medicines. In such cases, the hospital, as an employer could consider such free samples as taxable perquisite for employed doctors, and accordingly deduct tax. But for doctors working as consultants with a hospital who are receiving free samples, the TDS would first apply on the hospital, which can then deduct tax from the consultant doctors, the report added.

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