Are affiliate marketing practices regulated under Indian e-commerce laws?

Affiliate marketing refers to a model where individuals or entities (affiliates) promote products or services of merchants through unique referral links and receive commissions for sales or leads generated. In India, affiliate marketing itself is a legal and widely practised form of digital marketing, but it is not governed by a single dedicated law specific to affiliate marketing. Instead, it must comply with several overlapping legal regimes related to e‑commerce, consumer protection, advertising, taxation, and data privacy.

Legal and Regulatory Framework Governing Affiliate Marketing in India

Consumer Protection and Advertising Laws

• Affiliate marketing must avoid misleading or deceptive conduct. The Consumer Protection Act, 2019 prohibits unfair trade practices and empowers regulators to act against false or exaggerated promotional claims.
• The Advertising Standards Council of India (ASCI) provides guidelines that influencers and affiliates must disclose paid relationships clearly to consumers, ensuring transparency.

Disclosure Requirements

• Individuals and affiliates promoting products for commission are expected to clearly disclose their commercial relationship with the merchant to avoid deceptive practices, especially on digital platforms.

Tax Compliance

• Income earned from affiliate marketing is taxable as income under the Indian income tax regime (e.g., Section 194H on commission income), and affiliates must report earnings accurately.
• If the annual turnover exceeds the GST threshold, affiliates may need GST registration and compliance as a business providing digital services.

Data Privacy and Digital Compliance

• Collection or processing of personal data (e.g., tracking user clicks or sign‑ups) must observe privacy norms under laws such as the Digital Personal Data Protection Act, 2023, requiring clear consent and privacy notices.

E‑Commerce Rules and Platform Obligations

• While general e‑commerce rules (like Consumer Protection (E‑Commerce) Rules 2020) govern online marketplaces and sellers, affiliate marketing as a promotion model is not explicitly listed but affiliates promoting products via e‑commerce platforms must still comply with general e‑commerce consumer protection norms (e.g., transparency in product information).

Restricted or High‑Risk Promotions

• Promotion of pyramid schemes, chance‑based schemes, or unlicensed gambling‑related products through affiliate links is prohibited and may attract regulatory action.

Common Legal Risks and Compliance Areas

• Misleading Promotions: Affiliates must avoid exaggeration or unsubstantiated claims that could mislead consumers; regulators under the Consumer Protection Act can penalise false endorsements.
• Non‑Disclosure of Commercial Relationship: Failure to disclose affiliate commissions or relationships can be considered deceptive advertising and attract penalties or brand sanctions.
• Tax Non‑Compliance: Failure to report affiliate income or comply with GST rules can lead to notices, penalties, or interest from tax authorities.

Best Practices for Affiliates and Platforms

• Transparent Disclosure: Always clearly declare when content contains affiliate links and explain that commissions may be earned.
• Accurate Advertising: Promote products honestly, avoid misleading claims, and base recommendations on factual information.
• Tax Registration and Reporting: Register under GST if applicable and file income tax returns reporting affiliate earnings accurately.
• Respect Data Privacy: Ensure consent is obtained before collecting personal data or using tracking tools, aligned with privacy laws.

Example

Suppose a content creator in India runs a blog and shares affiliate links to online products on Amazon and Flipkart. They earn commissions when readers use these links to purchase items.

Steps for proper compliance:

• Include a clear disclosure statement at the top of blog posts indicating that the links are affiliate links and commissions may be earned.
• Ensure product claims and descriptions are accurate and not misleading or exaggerated.
• If the annual earnings exceed the GST threshold, register for GST and file returns reflecting affiliate income.
• Report all affiliate earnings as business income in annual income tax returns.
• If their blog collects user emails for newsletters, include clear privacy notices and obtain consent in accordance with data privacy norms.
• Avoid promoting pyramid schemes or unlicensed gambling platforms through affiliate links, as these fall under restricted categories.

In summary

Affiliate marketing practices in India are legal and permitted, but they must comply with consumer protection, advertising standards, taxation, data privacy, and e‑commerce related requirements to ensure full regulatory compliance.