Note4Students
From UPSC perspective, the following things are important :
Prelims level: Equalization Levy
Why in the News?
The Centre is considering the withdrawal of the 6% Equalization Levy on online advertisement services provided by offshore digital economy firms to Indian businesses.
What is Equalization Levy?
- The Equalization Levy was introduced in 2016 under Section 165A of the Finance Act, primarily to tax digital transactions conducted by foreign e-commerce companies with Indian businesses.
- It was designed to ensure that foreign companies, particularly in the digital economy, pay taxes for benefiting from Indian markets without a physical presence in the country.
- It was primarily aimed at business-to-business (B2B) transactions, which is why it is often referred to as the “Google Tax”.
- The levy mechanism involves withholding the tax at the time of payment made by the Indian service recipient to a non-resident service provider.
- The annual payment threshold for the levy is ₹1,00,000 for a single service provider in a financial year.
- Services covered under the levy:
- Online advertisement services (effective from June 1, 2016).
- Provision of digital advertising space or sale of goods to Indian residents (effective from April 1, 2020).
- Tax Rates:
- 6% of the gross consideration is levied on online advertisement services.
- 2% of the gross consideration is levied on e-commerce transactions like the sale of goods or services.
- Exclusions:
- The levy does not apply if the non-resident has a permanent office in India related to the service.
- The payment for the service is below ₹1 lakh.
- Tax Withholding: The tax is withheld by the Indian service recipient at the time of payment.
Why it is being Abolished?
- This move is part of India’s attempt to reduce tensions with the US, which raised concerns over such taxes.
- Similarly, the UK is considering the abolition of its digital services tax by April 2025.
- In August 2024, the Indian government removed the 2% levy applied to offshore tech firms (e.g., cloud services, e-commerce).
- The 6% levy on online advertisements remained, impacting companies like Google and Meta.
- The Finance Bill 2025 proposes a sunset clause to phase out the 6% levy on online advertisements by April 1, 2025.
| [UPSC 2012] What is/are the recent policy initiative(s)of Government of India to promote the growth of manufacturing sector? Setting up of:
1. National Investment and Manufacturing Zones 2. Providing the benefit of ‘single window clearance’ 3. Establishing the Technology Acquisition and Development Fund Select the correct answer using the codes given below: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 |
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