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“Navigate influencer marketing tax compliance in India for private limited companies with our step-by-step guide. Learn about payment categorization, income tax implications for influencers, deductibility for companies, TDS obligations, filing and compliance, bookkeeping, documentation, and GST implications. Stay informed to ensure accurate tax compliance in the evolving landscape of influencer marketing payments.”

Tax compliance in India for influencer marketing payments by a private limited company involves several aspects, including recording the expenditure in the books of accounts. Let’s break it down step by step:

1) Determine the nature of the payment: Influencer marketing payments can be categorized as either a business expense or a payment for services rendered, depending on the specific arrangement between the influencer and the private limited company. This classification affects the tax treatment of the expenditure.

2) Income tax implications for the influencer: Influencers receiving payment for their services are subject to income tax in India. They need to report their earnings as professional income or business income, depending on the nature of their activities. It’s important for the influencer to comply with their tax obligations, including filing tax returns and paying taxes on their income.

3) Deductibility of influencer payments for the company: The private limited company can claim the influencer marketing expenditure as a deductible expense, provided it is incurred wholly and exclusively for the purpose of the business. The Indian Income Tax Act allows businesses to deduct such expenses from their taxable income, reducing their overall tax liability.

4) TDS (Tax Deducted at Source) obligations: As per the provisions of the Indian Income Tax Act, if the influencer’s annual earnings from the 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 applicable surcharges and cess).

Finance Act 2022 inserted a new section 194R in the Income-tax Act, 1961 with effect from 1st July 2022. The new section mandates a person providing any benefit or perquisite to another person for their business/profession, to deduct tax at source @ 10% of the aggregate of value of such benefit or perquisite. The benefit or perquisite may be in cash or kind. In case, the aggregate value of benefit is less than Rs. 20,000, TDS is not applicable under this section. The CBDT has issued circular no. 12 of 2022 dated 16th June 2022 and clarified certain situations on the applicability of this section.

5) TDS filing and compliance: The company is responsible for deducting TDS at the applicable rate from the influencer’s payment and depositing it to the government within the stipulated time frame. 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.

6) Recording expenditure in books of accounts: To ensure proper tax compliance, the private limited company should maintain accurate books of accounts, including recording the influencer marketing expenditure. This involves creating an expense entry in the relevant ledger account, reflecting the payment made to the influencer. The details should include the name of the influencer, payment date, amount, and any other relevant information.

7) Documentation and substantiation: It is essential 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.

8) GST implications: Goods and Services Tax (GST) may also apply to influencer marketing payments in certain cases. If the 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 the provisions of GST, such as availing input tax credits on the GST paid by the influencer.

9) GST compliance: If the company is liable to pay GST, it needs to maintain appropriate GST records, file GST returns, and pay the applicable tax within the specified due dates.

It is important to note that tax compliance requirements may vary depending on factors such as the nature of the influencer’s activities, the amounts involved, and the specific circumstances of the private limited company. It is advisable to consult to ensure accurate compliance with the relevant tax laws and regulations.


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July 2024