With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non- resident entities, which of the following statements is/are correct? 1) It is introduced as a part of the Income Tax Act. 2) Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the "Double Taxation Avoidance Agreements". Select the correct answer using the codes given below:

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CollectorBabu · Accepted Answer

Correct Answer: Neither 1 nor 2. ● The levy was introduced in the Budget as part of the finance bill and not as a part of the Income Tax Act. This levy would fall under a separate, self-contained code and would not be part of the Income Tax Act, 1961. ● The government has found a way to indirectly tax companies such as Google and Facebook, a development which could set the stage for taxation of cross-border digital transactions and potentially drive up costs for advertisers. Instead of a straight tax on digital advertising platforms, the government has come up with what it calls an “equalisation levy” of 6% on the fees that advertisers pay. ● The term income tax is defined in double tax avoidance agreements to be mean ‘Indian income tax’. As the levy is not in the nature of income tax, and this levy is currently imposed under domestic tax laws and hence no credit is available under tax avoidance treaties, says Deloitte consultancy paper.

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