new tds law

The New TDS Rule and How it Affects Creators


The Indian Government has recently recognized the content economy as a potential career option and as a result, decided that content creators can be taxed as such. However, what is the TDS rule, and more importantly, how does the TDS rule affect the creators? Keep reading to learn more about what TDS is and how it may affect the creator economy in general. 

What is TDS?

TDS stands for Tax Deducted at Source. With that out of the way, let us first get into it – What type of tax is TDS? In simple terms, Tax Deducted at Source refers to the collection of taxes by the government at the very source of income. On the face of it, TDS seems like a fancier term for income tax. However, there is a difference between TDS vs Income Tax. Income tax is a sum of money that is collected annually at the end of each financial year. This is done once a year and if the amount that the person receives is less than the threshold set by the government, the person or organization does not have to pay income tax. However, the case with TDS is different. In the case of TDS, the tax will be collected at each payment instead of at the end of the year. This amounts to 10% of what the person is receiving. This is to simplify the process of tax collection while simultaneously also acting as a deterrence against possible tax evasion. 

Why is TDS Being Levied on the Creator Economy?

The creation economy, which consists of social media creators, and content creators, used to be in a legal gray area with respect to taxation because the transactions that took place in the field of course and content were difficult to verify and did not have a tax rate to rate it by. This is the very problem that they rectified with the new TDS rule. Now, there is a particular rate that they have to pay at every transaction, which makes transactions more transparent and traceable.

Types of Creators

Before getting into the nitty-gritty of the taxes levied on creators, it is important to understand the types of creators there are and which types come under the new TDS law. Given below are the 4 main types of creators in ascending order of follower count:

Nano Creators

These are the lowest level of creators and have a follower range of fewer than 10,000 followers. They are approached by companies that occupy very specific niches and cater to people who look for extremely narrow subsets of products. These kinds of creators engage with their followers the most, and because of this, they have the capability to convert more people. 

Micro Creators

Micro creators are next in the tier with a follower range of 10,000 to 100,000. These are much larger than the nano creators in scale, but they are still very niche-specific. They still do engage with their followers on a personal level, but it is inevitable that 100% engagement is not possible since the follower count is significantly higher. 

Macro Creators

This is where the reach is kicked up a notch higher with a follower count ranging from 100,000 all the way to a million. Here the economics of conversion is not one that comes out of engagement but rather out of sheer numbers. Here the people who follow the creator do not do so out of expectation of engagement but for their content. 

Mega Creators

Anyone who has a following larger than a million followers can be classified under mega creators. These people get offers from multiple offers from different brands as they cater to a wide target audience even though they might have had an initial core following. 

Types of Deals

Now that we have covered the types of creators there are, we need to look at the types of deals that they make with brands to better understand the creator economy. There are basically three, as mentioned below:

Cash Only

These are mostly in collaboration with big brands and mega & macro creators. The brand pays the creator to promote their product and as remuneration, the creator gets paid a certain amount of money. 

Cash + Barter

In this type of deal, the creator receives a certain amount of value in the form of an item or product and the rest of it is paid directly in cash. The bartered items’ value is determined by the brand that is advertising the product through the creator. Collaborations like this are done by the middle strata of creators, the macro and micro creators.

Barter Only

These are usually done between brand and creator when the influencer has only 1,000 to 100,000 followers. This system works best when the price of the product is not that high and people require proof of functionality, which makes it the ideal form of collaboration ideal for the lower strata of creators who engage with their audience more.

Implications of TDS on the Creator Economy

Under GST law, the services that creators offer are considered Online Information and Database Access or Retrieval Services (OIDAR). To avoid all the complex jargon, what this essentially means is that the government recognizes the use of information technology for delivering news, information, and other data via the internet as a legitimate career option.

It will be easier to understand this with the help of an example. Let’s consider that a Youtuber earns a product worth 1 lakh from a particular brand. The brand will have to bear the tax of the product that they have gifted. This step was not there before as the product given to the creator by the brand was branded as a gift, and anything that was given as a gift was not taxed. This has now changed under the new TDS law which states that the bartered item’s value will be considered as income for the creator and taxed at 10%. So, effectively, in the case mentioned above, the brand will have to pay 10% of 1 lakh (which is 10,000) to the government. The invoice for this will be recorded.

Later on, when the creator is filing their income tax return, they will have to show this product’s value with the tax paid by the brand as part of their income (which is, in this case, 110,000). The creator can then claim the taxed amount (10,000) as already paid by the brand, exempting them from doing so. The creator will then have to file GST on the rest of the products that they have received, but there are certain deductions, like the one mentioned above, that can be claimed by the creator as discussed below.

Here’s What Creators Can Do to Reduce the Pinch of the TDS

It is understandable that the new TDS structure will need some getting used to because there will be some initial intellectual friction involved. However, here are some of the ways in which creators can reduce paperwork with respect to brand integrations, collabs, etc:

Say No to Barter Collaborations

One of the ways in which the paperwork related to TDS can be reduced is by direct cash transactions. Here, since TDS is collected at the source, the burden of paying the tax falls on the brand, the invoice of which will be registered with the government, avoiding the extra step of adding the value of the product to the tax payable by the creator when filing for income tax and then claiming it later. 

Embracing the Review and Return Policy 

The person who reviews a particular product or service can give the product back to the brand itself after the review period. This means that the creator does not have to pay taxes at all, as there is no transaction between the two parties – the creator can use the product for a limited amount of time after which it needs to be returned to the company/brand they got the product from. 

Exploring Other Options for Revenue Generation

These changes will definitely impact the influencer market as brands may now become more reluctant in collaborating with Nano and Micro creators. 

While brands and creators alike figure out how to deal with these changes here is a quick list of other sustainable ways of monetizing their skills and content: 

  • Joining Affiliate programs 
  • Course Creation
  • Monetize Exclusive Content
  • Earning money from Ads

Instead of just creating promotional content, creators can use platforms such as Teachmore to mold their knowledge into the form of a course. They can then sell the course using an entire suite of tools and features that makes the entire process of content creation simple, effective, and easy. This can also help creators change the form of their content into one of educational content, hence changing the slab under which their content falls, as a result of which the tax bracket changes to the favor of the creator. 

Deductions Available for Creators 

Deductions refer to tax rebates that creators can apply for to reduce the amount of tax that they will have to pay. These deductions are based on the priority of necessity they have with respect to the creator’s niche. For example, makeup can be considered a necessity for a makeup artist, but not for a photographer. Hence the context regarding what needs to be deducted and what is not can be deciphered from the niche that they occupy and the kind of products required to keep the creators. Some of the common necessities for creators include:

  • Internet & communication charges 
  • Travel expenses 
  • Work from home allowances such as electricity, water, etc. 
  • Home and office rent 
  • Subscription fees 
  • Software licensing fees 

We hope this article has given creators a basic understanding of what TDS is, how it works, and what effects it has on the creator economy.

To get more insights, join our webinar on ‘Decoding the future of the Creator Economy: Exploring new channels of Revenue Generation’.

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