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:
- A. 1 only
- B. 2 only
- C. Both 1 and 2
- D. Neither 1 nor 2
Answer: D
Explanation
Statements 1 and 2 are not correct: Equalisation Levy was introduced in India in 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. As the levy was 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