UPSC Prelims 2018 Question:

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:

Explanation:

• Equalization Levy in India is imposed under the Finance Act 2016 and not as a part of the Indian Income Tax Act, 1961. It was introduced in 2016 through Finance Bill, 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India. It is aimed at taxing business to business transactions. So, statement 1 is not correct.
  
  
•  As per Sec 165 of Finance Act 2016, a person resident in India or a non-resident having a permanent establishment in India shall deduct EL at 6% on the consideration paid to non-resident towards specified services.
  
  
• 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, experts point out. So, statement 2 is not correct.
  
  

Therefore, option (4) is the correct answer.

Subject: Economics | Taxation