Preparedness of India's Tax Structure for the Creative Economy Assessed
In a bid to foster the burgeoning creator economy, the government is focusing on transforming India's tax system to better cater to digital creators. The creator ecosystem in India generates an estimated $20-25 billion in direct revenues and is projected to reach $100-125 billion by the end of the decade, while the global creator economy is expected to surpass $480 billion by 2027.
Currently, India boasts 2 to 2.5 million active digital creators with over 1,000 followers, but less than 15% of creator income gets accurately reported due to the complexity of the system. This is concerning, as India has just 1.5 influencers per 1,000 Instagram users compared to Brazil's 13 and America's 14, indicating significant untapped potential.
The government recognizes the need for change, as the current tax code treats creators as either traditional employees or conventional businesses, which is not an accurate representation. To address this, key reforms are being proposed, including:
- Expansion of digital search and seizure powers for tax authorities under the Income-Tax Bill 2025, allowing access to an individual’s entire “virtual digital space” such as emails, cloud storage, social media, and other digital platforms.
- Use of artificial intelligence (AI) to improve tax compliance and enforcement efficiency, with AI tools being used to better track digital economy transactions and ensure creators and digital startups meet tax obligations.
- Incentives for digital startups and green technology firms to promote growth in innovative sectors of the economy, including creator platforms and digital businesses.
- Comprehensive digitization of tax processes, such as end-to-end online filing systems, faceless assessments, automated refund processing, pre-filled returns, real-time TDS adjustments, and online grievance redressal.
- Broader tax reforms in line with digital economy integration, including bringing more sectors under the GST net and streamlining assessments, which indirectly impact digital creators by clarifying tax rules and improving administrative transparency.
However, these proposals raise concerns regarding digital privacy, surveillance, and constitutional safeguards since tax authorities’ expanded access to digital data could infringe on personal rights without adequate protections. Balancing enforcement modernization with privacy protections is a crucial aspect of ongoing discussions.
Other countries like Singapore and Dubai are adopting creator-friendly tax policies, potentially leading to a 'creator drain' from India. To secure India's leadership in the global creative economy, it's essential to reform the tax system to better support digital creators, who are pioneers of a new economic order.
Reforms should include a higher GST threshold for digital creators, optional quarterly composition schemes taxed at 2 percent, and a standardized 5 percent TDS deduction once annual payouts exceed ₹50,000, with standardized tax certificates issued in regional languages.
Enforcement actions by the Income Tax Department on several YouTubers and influencers revealed significant underreporting, primarily attributed to "ignorance of tax laws" rather than intent to evade. By simplifying the tax system and providing better education, the government can encourage more accurate reporting and compliance among digital creators.
In the end, the modernization strategy for India’s tax system targeted at supporting the digital creator economy is based on strengthening digital enforcement powers, leveraging AI, incentivizing digital businesses, and fully digitizing tax administration, while the challenge remains to safeguard digital privacy rights in this transformed landscape.
In light of the growing creator economy, the government's focus on transforming India's tax system includes proposals for technology integration, such as the use of artificial intelligence (AI) for improved tax compliance. Additionally, the government aims to foster business in the digital sector by providing incentives for digital startups and green technology firms, including creator platforms.
The reformed tax system should not only embrace technology but also address the current challenges, like less than 15% of creator income getting accurately reported. This can be achieved through measures like a higher GST threshold, optional quarterly composition schemes, and a standardized 5% TDS deduction for digital creators.
