Google Tax or Equilisation Levy


The finance ministry notified the equalisation levy (popularly known as Google tax) of 6%  announced in budget 2016-17, which came into force from June 1, 2016. As of now, it will apply to payments for online advertisements made by Indian business entities to non-residents (such as Google,Yahoo, Twitter, Facebook) where the aggregate payment in a financial year to a non-resident exceeds Rs 1 lakh. Only B2B transactions attract this levy.
“equalisation levy” means the tax leviable on consideration received or receivable for any specified service. The definition defines Equalisation Levy to be a ‘tax’. ‘Equalisation Levy’ is synonymous to ‘income-tax’.
Amid stiff opposition from countries such as the US, India had worked hard to incorporate in the Base Erosion and Profit Shifting action plan, the option for countries to levy tax in a digital economy, one of the options being an equalisation levy. India is the first country to utilise this option, by introducing equalisation levy.

A panel set up by the finance ministry to look into taxation of e-commerce transactions had, in addition to online ads, recommended a wide range of services for imposition of equalisaiton levy, ranging from online content; designing, creating, hosting or maintenance of a website; use or download of online music, movies, games, books et all, online search, online maps or global positioning systems (GPS) applications.

If the non-resident service provider has a permanent establishment (place of business in India) and the bill is raised by such Indian entity, then the equalisation levy will not have to be deducted by the Indian payer. 

Considering the potential of new digital economy and the rapidly evolving nature of business operations it is found essential to address the challenges in terms of taxation of digital transactions as the typical direct tax issues relating to e-commerce are the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity and a taxing jurisdiction, the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes. In order to address these challenges, it is proposed to insert a new Chapter titled “Equalisation Levy” in the Finance Bill, to provide for an Equalisation levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.

Wednesday, 01st Jun 2016, 09:23:36 AM

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