DR Ambedkar IAS Academy

Equalisation Levy

The term Equalization Levy colloquially called Google Tax had madeits first appearance in the 2016 budget documents. The Government hasput a 6% equalization levy on the income accrued to a foreign E-commerce company which is not a resident of India. This would affectGoogle, Amazon, Facebook etc.This tax is applicable to B2B services and goods only and NOT on B2C{Business to Consumer} goods and services. The tax is applicable toonly those companies which have no permanent establishment inIndia

Equalisation Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.

Relevance of Equalisation Levy

Over the last decade, Information Technology has gone through an exponential expansion phase in India and globally. This has led to an increase in the supply and procurement of digital services. Consequently, this has given rise to various new business models, where there is a heavy reliance on digital and telecommunication networks.

As a result, the new business models have come with a set of new tax challenges in terms of nexus, characterization and valuation of data and user contribution. The combination of inadequacy of physical presence based nexus rules in the existing tax treaties and the possibility of taxing such payments as royalty or fee for technical services creates a fertile ground for tax disputes.

Applicability of Equalisation Levy

Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy:

  • The payment should be made to a non-resident service provider;
  • The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year

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