Tax compliance is an important aspect of influencer marketing that both influencers and private limited companies must consider. Tax compliance not only helps to maintain legal and financial integrity, but it also helps to avoid potential penalties and complications.
The first step in tax compliance is understanding the nature of the influencer marketing payment. It can be categorised as a business expense or a payment for services rendered, depending on the specific agreement between the influencer and the private limited company. This classification has implications for the tax treatment of the expenditure.
Influencers who receive payments for their services are subject to income tax in India. They are required to report their earnings as professional income or business income, depending on the nature of their activities. It is essential for influencers to fulfil their tax obligations by filing tax returns and paying taxes on their income.
Private limited companies can claim influencer marketing expenditures as deductible expenses if they are incurred wholly and exclusively for the purpose of the business. The Indian Income Tax Act allows businesses to reduce their taxable income by deducting such expenses, thereby reducing their overall tax liability.
According to the provisions of the Indian Income Tax Act, if an influencer's annual earnings from a company exceed the prescribed threshold, the company must deduct TDS on the payment made to the influencer. The current threshold for TDS applicability on professional fees is INR 30,000 per financial year. The TDS rate for payments to resident individuals is generally 10%, excluding surcharges and cess.
The company is responsible for deducting TDS at the applicable rate from the influencer's payment and depositing it to the government within the specified timeframe. Additionally, the company must issue a TDS certificate (Form 16A) to the influencer, providing details of the TDS deduction. Failure to deduct or deposit TDS may result in penalties and interest charges.
To ensure proper tax compliance, private limited companies should maintain accurate books of accounts, including recording influencer marketing expenditures. This involves creating an expense entry in the relevant ledger account, reflecting the payment made to the influencer. The details should include the influencer's name, payment date, amount, and any other relevant information.
It is crucial to retain all supporting documents related to influencer payments, such as invoices, agreements, contracts, or any other evidence of the transaction. These documents serve as proof during tax audits or assessments, providing the necessary substantiation for the incurred expenditures.
In certain cases, GST may apply to influencer marketing payments. If an influencer's total annual turnover exceeds the prescribed threshold (currently INR 20 lakhs for most states), they must register for GST and charge GST on their services. The private limited company, as the recipient of the service, may need to comply with GST provisions, such as availing input tax credits on the GST paid by the influencer.
If the company is liable to pay GST, it must maintain appropriate GST records, file GST returns, and pay the applicable tax within the specified due dates. Compliance with GST regulations ensures adherence to the tax framework and prevents any potential issues or penalties.
In India, tax compliance for influencer marketing payments involves several necessary steps, including determining the nature of the payment, understanding income tax implications for influencers, ensuring deductibility for companies, fulfilling TDS obligations, keeping accurate records, and complying with GST requirements.
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