The government announced new norms for equalisation levy to ensure payments made by foreign companies on digital services by Indian ones are taxed. First introduced in the recent Budget, the government looks to tax non-resident entities like Facebook, Google, Yahoo and Twitter who use Indian companies to advertise online.

Equalisation levy, or Google Tax as its popularly known, refers to anti-avoidance provisions that have been passed in several jurisdictions dealing with profits or royalties that have been diverted to other jurisdictions with lower or nil rates.

The Finance Ministry on Monday issued a circular with the new norms for equalisation levy which will come into effect on Wednesday, June 1.It will apply to payments made by non-residents to Indian business for online advertisements, where the aggregate payment in a financial year exceeds ₹1 lakh.

According to the Times of India, the new norms which are imposed may not be amended till the next budget; the government has adopted a wait-and-watch approach, before which the ambit of this levy will not be expanded.

As India transforms into a digital economy, the government is implementing aggressing tax regimes to ensure inflow of foreign currency is accounted for. The equalisation levy is set at 6% for payments exceeding ₹1 lakh in aggregate per year.

If the foreign entity has a permanent establishment in India, then the cess will not be imposed. Companies such as Facebook, Google, Yahoo and Twitter are likely to be impacted unless their business is routed through their subsidiaries in India.

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