The Backdrop

After COVID, India saw an explosion of influencers and content creators — many receiving free gifts, sponsored trips, gadgets, and other benefits that often went untaxed.

The Finance Act, 2022 introduced Section 194R, which brings the value of any “benefit or perquisite” — whether received in cash or kind — into the tax net. It applies broadly to people receiving benefits connected with business or professional activities, not only influencers.

Why Section 194R Exists

Section 28 of the Income Tax Act, 1961 already provided that such benefits should be considered under “Profits and Gains from Business or Profession.” However, many of these benefits were not being reported.

Section 194R addresses this through a tax deduction at source (TDS) mechanism.

How Section 194R Works for Influencers

• Anyone providing an influencer with a benefit such as cars, phones, gold coins, foreign trips, event tickets, or cash incentives for brand promotion may need to deduct 10% TDS on the value.
• Keep it, pay tax on it. Return it, you’re in the clear.
  If an influencer keeps a product, it becomes taxable. If the product is provided only for a review or shoot and is later returned to the company, it is not treated as a perquisite for this purpose.
• Influencers must disclose the fair market value of benefits they receive and retain in their Income Tax Return (ITR). The tax implication does not disappear simply because the item was received instead of cash.

Case Studies

Sponsored Travel

Flights worth ₹20,000 plus accommodation worth ₹30,000 create a total benefit of ₹50,000.

At 10% TDS, the amount would be ₹5,000.

If a ₹12,000 cash fee is also paid, the total becomes ₹62,000, resulting in TDS of ₹6,200.

Gadgets Kept for Reviews

A gadget retained after a review may be treated as a business receipt rather than an ordinary gift.

If there is no cash payment available from which tax can be withheld, the company must ensure that the influencer pays the applicable tax and provides the required proof before the device is retained.

Failure to properly account for such income may lead to tax consequences and penalties.

Paperwork Trail

If TDS cannot be deducted upfront, the recipient may need to pay the applicable tax directly and provide a declaration along with a copy of the tax challan.

These transactions are reported through Form 26Q, while the deductor issues Form 16A. The relevant information may also appear through TRACES and Form 26AS.

CBDT Circular No. 18 of 2022

CBDT Circular No. 18 of 2022, dated 13 September 2022, provided additional clarification regarding Section 194R.

• Certain loan waivers by banks and NBFCs are exempt from TDS.
• “Pure agent” reimbursements with appropriate GST pass-through treatment are not considered perquisites.
• For dealer conferences, accommodation costs covering the event period, including the permitted buffer period, may not attract TDS. Additional stays may be treated differently.
• Where benefits provided to a group cannot reasonably be allocated among individual recipients, specific tax treatment may apply.
• Certain benefits involving embassies, UN bodies, and bonus or rights shares issued to shareholders are exempt.
• A dealer receiving a taxable benefit such as a car may be able to consider its value as the actual cost for depreciation purposes.

When Section 194R Does Not Apply

• Employer-to-employee benefits covered under Section 192.
• Payments or benefits involving non-resident recipients covered under Section 195.
• Situations where there is no underlying business or professional relationship between the giver and recipient.
• Total benefits below ₹20,000 during a financial year.
• Specified small taxpayers falling within the applicable turnover limits.
• GST excluded from the valuation of the benefit.
• Applicable discounts and rebates that are not treated as benefits or perquisites.
• Free samples provided for promotional purposes and subsequently returned.

Bottom Line

Section 194R changed how free products, sponsored experiences, and other business-related benefits are treated for tax purposes.

For influencers and content creators, the key distinction is often whether a product or benefit is simply used temporarily and returned, or whether it is permanently retained.

A retained benefit, such as a phone, car, sponsored trip, or another valuable item, may create a tax obligation even when the influencer does not receive an equivalent amount in cash.