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:

[UPSC Civil Services Exam – 2018 Prelims]

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (d)        

Explanation:

Equalization tax

• It was first introduced by the Finance Act, 2016, at the rate of 6 per cent on payments for digital advertising services received by non-resident companies without a permanent establishment (PE) in India, if these exceeded Rs 1 lakh a year.
• The Budget 2020-21 has expanded its scope to include consideration received by non-resident e-commerce operators from e-commerce supply or services.
  • The rate applicable has been set at 2 per cent.
• It is aimed at taxing business to business transactions.