With reference to India's decision to levy an equalization tax of 6% on online advertisement services offered

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:

Accepted Answer

Statement 1 is incorrect: India's equalization levy (often referred to as 'Google Tax') of 6% on online advertisement services offered by non-resident entities was introduced as a new Chapter VIII in the Finance Act, 2016, specifically dealing with the equalization levy. It was not introduced as a part of the Income Tax Act, 1961. This distinction was crucial as it allowed the levy to operate outside the purview of traditional income tax treaties.

Statement 2 is incorrect: The equalization levy is generally not covered under Double Taxation Avoidance Agreements (DTAAs). DTAAs are typically designed to avoid double taxation on income as defined under income tax laws. Since the equalization levy was designed as a separate levy outside the scope of income tax, it does not usually fall under the ambit of existing DTAAs. Therefore, non-resident entities typically cannot claim a tax credit in their home country under DTAAs for this levy.

Answer

1 only

Answer

2 only

Answer

Both 1 and 2

Answer

Neither 1 nor 2

Explanation

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