Tax! Tax! Tax! We don’t like it, we wish to avoid it, but the government likes tax so we can’t avoid it. As per the new guidelines issued by the Central Board of Direct Tax (CBDT), Social Media Influencers, and Doctors will have to pay a 10% Tax deducted at source (TDS) for the free sample they receive from the respective companies for promotional activities from the 1st of July onwards.
What do the New Guidelines say?
As per the Finance Act, 2022 a 10% tax will be deducted at source (TDS), exclusive of surcharge or cess on freebies exceeding Rs. 20,000 in a year that Influencers and Doctors receive or retain from sales promotion. This particular provision is mentioned in section 194 R which mandates 10% TDS to be paid by Influencers and Doctors for the free samples and products they receive from different companies for the promotional activities.
The Rationale behind the arrival of New Guidelines
A Barter System is going on between companies (usually small start-ups) and Influencers in which these new start-ups gift samples of their products to these influencers for the promotion of their products. This Barter system was so favorable to these small startups due to the low-cost spending on marketing. Due to this system and minimal paperwork, the value of these products goes unrecorded and doesn’t account for the taxation. The same goes for doctors who receive samples of medicines from various pharma companies and the value of which goes unrecorded. To eliminate this loophole the Central Board of Direct Tax (CBDT) issued new guidelines mandating payment of 10% TDS on freebies from the 1st of July 2022 onwards.
What’s in for Influencers and Doctors?
Incentives in any form either in cash or in the form of gadgets, Precious metals like gold, and everything is covered under section 194 R of the Finance Act, 2022 and will be taxed. If a commodity or product is returned after rendering a service then it will not be considered a beneficiary under the Act and no tax will be charged. Doctors receiving samples as an employee of the hospital are eligible to be taxed as per the new guidelines.
Now small startups need to think twice before gifting products for promotional purposes due to the 10% TDS. Accounting for the gifted products in the books is the only safe path for companies to avoid raids and other complications with the state authorities.