Tax Implications on Social Media Influencers under Income Tax Act

Social media has become ingrained in our lives as a result of the digital revolution, and “Influencer” marketing has emerged as a new means of reaching out to individuals. People have established the practice of reading “reviews” of their favourite influencers before making any purchase decisions in the recent past.

According to statistics, the use of influencer marketing has increased significantly, and it has been discovered that these influencers are trusted by millions, making them a valuable commodity for firms looking to endorse their products.

It has allowed brands to sell their products while also allowing the average person to establish their brand through content creation and engagement. Because most of these influencers are regular people, the content they create is more relatable to the general public and hence more engaging. This article will look at how these influencers make money through social media platforms, as well as the tax ramifications of doing so.

Increased Use of Social Media Platforms

The number of social media influencers on YouTube and other platforms has risen dramatically in recent years, particularly on YouTube. Because the pandemic has decreased actual engagement, marketers have turned to these social media influencers to sell their products, which has resulted in a significant increase in revenue.

The consumer base has shifted significantly to social media sites. Not only has the number of users increased but so has the amount of time they spend on these platforms. With such a large number of users, social media has paved the road for social media influencers to advertise things and earn big cash.

People are using YouTube and other social media platforms as a medium to connect to a huge proportion of the public, and are thus attempting to make it a full-time vocation, due to a large number of users across the country. Because of the vast number of users, vloggers and social media influencers have the potential to sponsor and advertise products from other brands. Needless to say, this generates income, and any income earned in India is subject to taxation following the Act’s terms. As a result, the focus of this essay will be on the implications and treatment of income by YouTubers and Influencers under the Act’s requirements.

Income Sources for Bloggers and Influencers

Receipts from the YouTube channel

If a Youtuber creates content in the form of videos, he will be compensated by Youtube according to their monetisation policy.

Advertisement and endorsement from brands

Aside from Youtube revenue, a Youtuber may also earn money through brand endorsements, where they promote a certain business in their videos, and through AdSense.

Video production, design, SEO, and optimization consulting services

Many YouTubers also provide consulting services to others who want to master the skills of brand creation, content creation, video production, SEO, SMM, and other linked services via their YouTube channel. Many of them also sell courses on the subject, which contributes to their income.

Income from affiliate marketing and other sales funnel

Youtubers and influencers frequently advertise things directly or through affiliate marketing by mentioning the links to the products/services they are pushing, and when a customer purchases something through their link, a portion of the revenue goes to the influencer/Youtuber.

Applicability of Income Tax on Youtubers or Influencers

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.

Income tax can be levied under two schemes:

Income from business and profession

1. During the fiscal year, an aggregate of gross receipts is computed, and then all expenses are adjusted against the gross receipts. However, only those expenses that are authorised under Section 37 of the Act are deducted from gross receipts.

2. Following the adjustment (Gross profit – Expenses*), the difference is the Net profit, on which tax is due.

3. For exclusions, as provided by the Act, deductions as provided by Sections 80C, 80D, and other sections of the Act, and disallowances as provided by Section 37 of the Act, all other provisions of the Act apply. When gross receipts in an F.Y. exceed 1 crore, a taxpayer is required to get his books of accounts, according to the rules of the Income Tax Act. In an F.Y., if the taxable income is less than 50% of the gross receipts, the business’s books must be audited.

Presumptive scheme

1. Residents with gross receipts of less than 50 lakhs in a fiscal year are eligible.

2. Then 50% of total gross receipts will be considered taxable income, and tax will be paid at the required slab rates under the Income Tax Act.

Allowable expenses

1. If you can prove that an item was incurred in the course of or in the advancement of your business, you can deduct it from your gross receipts. For example, travel expenses for vlogging, hotel expenses, Internet bills, electricity bills, and the cost of your equipment repairs, to name a few.

2. Expenses for marketing and public relations.

3. All capital goods or equipment used in the business such as laptops, cameras, and other accessories are used to conduct any business activity. All expenses incurred in acquiring assets are not considered expenses, although depreciation can be claimed on them under the Act’s requirements.