[Opinion] Understanding Tax Implications for Social Media Influencers and Brand Collaborations

CA Rahul Singh & CA Manila Mehta – [2023] 152 taxmann.com 520 (Article)

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. Influencer marketing is part of the brand’s overall social media marketing strategy.

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.

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