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 code given below :
Answer:
(d)
CA
Statement 1 is incorrect.The government’s decision to levy an equalisation tax of 6 per cent on online advertisement services offered in the country by non-resident entities will impact users, especially start-ups that rely almost entirely on the online world to popularize their services. Further, as the levy is not introduced as part of the Income Tax Act but as a separate legislation under the Finance Bill, global firms that offer such services in India cannot claim a tax credit in their home country under the double taxation avoidance agreements. Statement 2 is incorrect. Finance Minister Arun Jaitley during Budget speech said that, “In order to tap tax on income accruing to foreign e-commerce companies from India it is proposed that a person making a payment to a non-resident (global advertising platform), who does not have a permanent establishment, exceeding in aggregate Rs.1 lakh in a year, as consideration for online advertisement, will withhold tax at 6 per cent of gross amount paid, as equalisation levy,”. Hence, d is the correct option.