This article is written by Abdullah Mustaqueem, pursuing a Certificate Course in Advanced Corporate Taxation from LawSikho. This article has been edited by Dipshi Swara (Senior Associate, Lawsikho).
Table of Contents
Introduction
With the digital boom, social media has integrated with our lives and “Influencer” marketing has become a new tool for reaching out to people. In the recent past, people have developed this habit of going through “reviews” of their favourite influencers before making any purchase decisions.
In fact, the stats say that there has been a considerable growth in the share of influencer marketing and it has been found that these influencers are trusted by millions which has made them a hot-cake for the brands to endorse their products.
It has not only paved the way for brands to market their products but has also given the common man to build his own brand through content creation and engagement. As most of these influencers are normal people the content created by them is more relatable to the people hence more engaging. This article will focus on how these influencers make their earnings with the help of social media platforms and what are the tax implications for the same.
Increased use of social media platforms
The number of social media influencers on Youtube and other platforms has increased considerably especially during the last two years. As the pandemic has limited physical interaction, the brands have now turned towards these social media influencers to market their products on their respective products leading to considerable growth in their revenues.
There has been a significant shift in the consumer base to social media platforms. Not only the number of users but also their time spent on these platforms has increased considerably, with such a huge number of users, social media has paved a way for social media influencers to market the products and hence earn significant revenues.
The graph represents the trends of time spent by the users on social media platforms:
For a detailed report of time spent on social media platforms by users click here.
Due to the digital boom in the last few years, there has been an emergence of people making videos on various topics be it education, fitness, tips/ideas/classes related to business, reviews of movies, books, gadgets, etc.
With such a large number of users across the country, People are using youtube and other social media platforms as a medium to connect to a large proportion of the population, and hence trying to make it a full-time profession. Since there is a large number of users, it creates an opportunity for the vloggers as well as the social media influencers to sponsor and advertise products of other brands. Needless to say, this generates income and when there is any kind of income earned in India, it is liable to be taxed as per the provisions of the Act. So, this article would deal with the Implications and treatment of Income by YouTubers and Influencers as per the provisions of the Act.
Implication of tax on social media influencers
Sources of income for vloggers and influencers
- Receipts from Youtube (On the basis of views and engagement).
- Advertisements and endorsements from brands.
- Consultancy services on video making, designing, SEO and optimisation.
- Income from affiliate marketing and other sales funnels.
Receipts from Youtube
If a Youtuber is creating content in the form of videos then he will get remuneration as per the Youtube monetisation policy from Youtube itself.
Advertisement and endorsement from brands
Apart from earnings through Youtube, a Youtuber also receives payments through brand endorsements where they promote a certain brand in their videos and through AdSense as well.
Consultancy services on video making, designing, seo and optimisation
Many YouTubers also offer consultancy services through their Youtube channel to other people who want to learn the skill of brand creation, content creation, video making, SEO, SMM, and other allied services. Many of them also sell courses on the same as well which also forms a part of their revenue.
Income from affiliate marketing and other sales funnel
It is often seen that Youtubers or influencers promote products directly or through affiliate marketing by mentioning the links of products/services they are promoting and when any user makes any purchase using their link a part of the revenue goes to the influencer/Youtuber.
How is this income taxed?
For individual influencers
If the said vlogger/influencer is an Individual then he/she shall be taxed as an individual, unless registered as an LLP or Partnership Company. As a YouTuber or influencer is a professional hence, their income from social media platforms will be treated as “Income form Business and Profession” (PGBP) as per the provisions of the Income Tax Act.
Since it is a service-based business only normal provisions of the Income Tax Act are applicable. Individual influencers’ earnings are taxed at current slab rates. If the gross receipts during an FY exceed 1 crore then the tax audit is Liable. And the provisions of TDS will also be applicable to the YouTuber/Influencer whenever any payment is made to him/her. This means that tax shall be deducted before making payments to them as per the rates prescribed under the Act. The credit of which can be claimed at the time of filing the income tax return.
When the gross turnover/receipts during an FY is below 1 crore then the said YouTuber/Influencer shall be taxed normally and maintain the books of accounts, but if the gross receipts are more than 1 crore in an F.Y. then the books of accounts shall be audited as per section 44AB of Income Tax Act,1961.
In the case where your tax liability is more than Rs 10,000/- in a given Financial Year (FY), you are liable to pay advance tax as per the provisions of the Act. It shall be paid in the following manner :
- June 15TH -15% of advance tax.
- September 15th – 45% of advance tax.
- December 15th – 75% of advance tax.
- March 31st – 100% of total tax liability in that given FY.
All the TDS that has been deducted in a financial year and the advance tax that has been deposited is reflected in Form 26AS. As per the provisions of the Income Tax Act, tax deducted at source (TDS) is also applicable to the payments made to the YouTubers and influencers. Rates of TDS applicable will depend upon the nature of service or the type of transaction entered into.
Applicability of income tax on Youtubers or influencers
Income earned through Youtube or sponsorship collaborations are considered to be treated as “Income from the profession” and hence the tax is levied as per the slab rates.
Income tax can be levied under two schemes
Income from business and profession
A. An aggregate of gross receipts is calculated during the FY, And then all the expenses are adjusted against the gross receipts. But only those expenses are adjusted against the gross receipts which are allowable under Section 37 of the Act.
B. After the adjustment (Gross profit – Expenses*) the difference is the Net profit and hence the tax is payable on the same.
C. All the other provisions of income tax apply for exemptions as per the provisions of the Act, deductions as under 80C, 80D, etc. and disallowances if any as per Section 37 of the Act. As per the provisions of the Income Tax Act, a taxpayer has to get his books of accounts when the gross receipts are equal to 1 crore or greater in an F.Y. In an F.Y. if the taxable income is less than 50% of the gross receipts then it is mandatory to get the accounts of the said business audited.
Presumptive scheme
- Applicable to residents who have a total of gross receipts less than 50 Lakhs in a F.Y.
- Then 50 per cent of the total gross receipts are to be treated as taxable income and thereby the tax shall be paid on the same at the prescribed slab rates under the Income Tax Act.
- Important point to be noted is that there are no deductions allowed against this above calculated income.
Allowable expenses as per the Act (under Section 37 of Income Tax Act)
- Expenses in the due course of business: If you can show that a particular expense is done in due course or furtherance of business then you can claim the same against the gross receipts. For example bills of travelling done for vlogging, bills of hotel stay, Internet-bills, electricity bills, cost of your repairs of equipment etc.
- Expenses incurred in marketing and promotions.
- Depreciation: All the capital goods; that is, the equipment used in the business like laptop, cameras and other accessories used for the purpose of doing any business activity. All the expenses incurred in acquiring of assets cannot be treated as expenditure while depreciation can be claimed on the same as per the provisions of the Act.
Example
Mr. Tarun is a Youtuber who earns INR 26 lakh through sponsored posts during FY 2019-20. His expenditure includes the following:
- Camera crew and editors’ salary – INR 3 lakh,
- Marketing team – INR 1.5 lakh,
- Total software subscription fee – INR 70,000.
In this case, Net profit would be INR 20.8 lakh. In the above example opting for a presumptive scheme would be better since the net taxable income is 13 lakh as compared to 20.8 lakh.
Guidelines for influencers on the applicability of GST
A blogger is an individual who is engaged in creating content in a digital form through which it provides space to brands to endorse their products. Before going into a detailed discussion for applicability of GST on vlogger/Youtuber/influencers we need to look into their working model. Most of the bloggers earn their revenues through AdSense which works as a mediator between brands and bloggers.
GST applicability on bloggers
As per the provisions of the Act, every supply of either goods or services made for a consideration by a person in the course and furtherance of business shall be considered as “Supply” under GST. And we know that bloggers supply services to brands or advertisers by endorsing them on their respective platforms.
Nature of services
The services offered by a blogger are categorised as OIDAR Services (Online Information and Database Access or Retrieval services). Under Section 2(17) of IGST Act 2017, Online Information and Database Access or Retrieval Services (OIDAR) means services whose delivery is made through the use of information technology over the internet or an electronic network and the nature of which can be automated and involves minimal human intervention where it is impossible to deliver the same without information technology and includes electronics services such as advertisement on the internet.
Place of supply
As per Section 13 of IGST Act 2017, the place of supply shall be the place at which the blogger is performing business or where he has registered as the “Principal place of business”. And the place of the recipient of service of supplier that is Google Adsense, Where the location of the recipient of services is outside India it shall be treated as export of services under section 13 of the Act.
As per Section 13(12) of the IGST Act, the place of supply of OIDAR Services shall be the location of the recipient of services. Accordingly, the bloggers are covered under sec 13(12) of the GST Act and the place of supply of service is the place of Google AdSense/YouTube. (out of India).
Whether it is export of service or not?
Section 2(6) of IGST Act 2017 defines export of services like the supply of any service when, ––
1. The supplier of service is located within the territory of India;
2. The recipient of service is located outside the territory of India;
3. The place of supply of service is located outside the territory of India;
4. The consideration for such kind of services has been received by the supplier of service in convertible foreign exchange; and
5. The supplier of service and the recipient of service are not merely establishments of a distinct person.
Reasons behind vlogger services being considered as “Export”
1. The service providers are registered and located in India.
2. The recipient (Google) of services is located outside India (Singapore).
3. The place of supply is also outside India as discussed above (Under Section 13(12) of IGST ACT).
4. Payments received by the bloggers are in convertible foreign exchange.
5. Vloggers and Google are not merely establishments of a distinct person.
Hence, it shall be treated as an export of services.
Zero rated supply
As per the provision of Section 16(1)(a) of the IGST Act 2017, the export of services is treated as a zero-rated supply. That means vloggers are providing zero-rated services to Google AdSense and Google YouTube for running advertisements on their blogs and YouTube videos. If such services are provided to a facilitator registered in India, it will not be considered as zero-rated and the GST rate applicable will be 18%.
Registration requirement
One of the most concerning questions for a vlogger is when does the liability to get itself registered arises under GST? So here is the answer:
As per the provisions of Section 22(1) if a vlogger /YouTuber/ influencer is making gross receipts or aggregate turnover of 20 Lakhs (10 lakhs in special states) or more in a financial year then he is liable to take registration under GST Act (10 lakhs in special states). For a list of special category states here).
GST returns
All the Bloggers/Youtubers/Influencers registered under GST are required to file returns as mandated for other businesses which shall include GSTR-1, GSTR-3B, AND GSTR 9 (annual return).
Other relevant issues
Though the vloggers/Youtubers/influencers receive payment directly through PayPal, bank transfer and the amount are inclusive of GST, but they don’t raise Invoice in the favour of Google although it is recommended that they should raise a proper invoice as per prescribed format under GST (For a prescribed Invoice format under GST click here) and need not give the invoice to Google, still, it is highly recommended that invoice should be raised and keep it along with books of accounts. This will help them while filing GST returns.
Further, blogger services are considered as export of services, and payments get transferred directly to the bank, a Foreign Inward Remittance Certificate (FIRC) is required to support the refund claimed. FIRC is a certificate issued by the bank against any inward remittance received against an export.
Conclusion
As per the changing needs of society, the professions are also evolving, and so the tax should as well. Keeping that in mind the government of India has undertaken the implementation of GST in 2017 and tried to keep it as comprehensive as possible so as to include every commercial activity under its purview and here under this article you can see how it has strategically taxing services offered by social media influencers. On the other hand, the Income Tax Act has also provided a comprehensive explanation as to how these influencers are to be treated under the provisions of the Act. This step will not only prove to be beneficial for the government in increasing its revenues but will also help in keeping track of transactions done with international entities which would enable curbing round-tripping and conversion of black money into white money also it would help India earn a considerable amount of foreign exchange which would in turn help in reducing the fiscal deficit of India.
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