12/16/2016 EqualisationLevy@6%onDigitalAdsfrom1stJune2016

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EqualisationLevy@6%onDigitalAdsfrom1stJune2016

TheDigitalSpacehasgrownveryrapidlyinthepastfewyearsandisexpectedtogrowsubstantiallyinthenextfewyears.Thebiggestbeneficiaries
of this rapid growth in the Digital Space are companies earning through Digital Ads like Google, Facebook, Twitter, Linkedin, Yahoo and other
advertisingmajors.

Moreover, as these companies are located outside India, they are not even subject to any taxes in India. Business in the Digital Domain is done
irrespective of the physical location of the service provider/recipient and is being done in the nebulous world of cyberspace. Persons carrying
businessindigitaldomaincouldbelocatedanywhereintheworld.

Thesenewbusinessmodelshavecreatednewtaxchallenges.Thedigitalbusinessfundamentallychallengesthecurrentmanneroflevyoftaxes
whicharebasedonthepresencebasedpermanentestablishmentrules.

IntroductionofEqualisationLevy@6%onDigitalAds
ManyInternetCompaniesaregeneratingmassiverevenuesfromIndia.However,astheydonthaveapermanentestablishmentinIndiatheyare
not liable to pay to any income tax in India. The Budget 2016 has put an end to this free run for such internet companies and has proposed to
introduceanequalizationlevy@6%onspecifiedserviceswhichareavailedbyIndianResidentsfromNonResidentproviders.

ThisEqualisationLevyof6%isproposedtobeleviedonspecifiedservicesbyInternetcompanies.Theonlyspecifiedservicementionedasofnowis
Advertisement,anyprovisionfordigitaladvertisingspace,oranyotherfacilityorserviceforonlineadvertisements.

WiththeintroductionoftheEqualisationLevy,theGovthasbeenindirectlyabletotaxtheGlobalAdvertisingCompanies.Moresuchservicesmaybe
addedinthelistofspecifiedservicesinfuture.CurrentlythisEqualisationLevywouldonlybeonAdvertisements.

ApplicabilityandMannerofDeductionofEqualisationLevy
TheEqualisationLevywouldonlybeapplicableiftheaggregateamountofconsiderationforspecifiedservices(Ads)exceedsRs.1Lakhduring
theyear.ThislimitofRs.1Lakhhasbeenintroducedtoreducetheburdenofsmallplayersinthedigitaldomain.Iftheaggregatepaymentmadeor
expectedtobemadeduringthefinancialyearislessthanRs.1LakhEqualisationlevywontbeapplicableinthiscase.

ThislevyofEqualisationwouldbeinthesamemannerasTDSi.e.thepersonmakingthepaymentforDigitalAdvertisementswouldberequiredto
deductEqualisationLevy@6%oftheTotalPaymentanddepositthesamewiththeCentralGovt.

IncaseofanyfailureincomplyingwiththeprovisionsoftheEqualisationLevy,theamountpaidforsuchserviceswontbeallowedtobeclaimedas
anexpenseforincometaxpurposes.

ExemptionfromEqualisationLevy
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EqualisationLevywouldnotbeapplicableinthefollowingcases:
CHARTEREDCLUB
1.IfthePaymentmadeduringtheyearislessthanRs.1Lakhs
2.IftheorganisationmakingthepaymentisregisteredinJammu&Kashmir

REASONFORINTRODUCTIONOFEQUALISATIONLEVY
Manycompanieswhichareprovidingservicesinthecyberspaceregisterthemselvesinacountrywhereinthetaxratesarelowandpayverylow
taxesontheirglobalincome.TheissueoftaxingtheincomeoftheseGlobalAdvertisingGiantshasbeenonthemindsoftaxauthoritiesofseveral
countries.

InarecentcaseheldintheUKitwasheldthatbyregisteringitselfinDublininsteadofUK,Googlewaspayingnegligibleamountoftax.Google
lostthecaseandhadtopay$185MilllionintaxestotheUKGovt.

IfwetalkaboutIndiaTherevenueofGooglewasRs.4108Crorein201415andtherevenueofFacebookwasRs.123.5Croresduringthesame
period. Introduction of Equalisation Levy would fetch the govt a lot of money which till now was not taxed. Many people are also referring to this
EqualisationLevyasGoogleTaxbecauseamajorchunkofonlineadsspentgoestoGoogle.

AnnualReturnandDepositofEqualisationLevywiththeGovt.
TheEqualisationLevywhichistobededucted@6%isrequiredtobedepositedwiththeGovt.within7daysfromtheendofthemonthinwhich
thisamounthasbeendeducted.Forexample:IfEqualisationLevyhasbeendeductedinthemonthofSept,itisrequiredtobedepositedwiththe
Govtonorbefore7thOct.

ChallanNo./ITNS285isrequiredtobedepositedalongwiththePaymentofEqualisationLevy.EqualisationLevycanbedepositedonlinewiththe
govtthroughthefollowinglink:

https://onlineservices.tin.egovnsdl.com/etaxnew/tdsnontds.jsp

AnAnnualReturnisrequiredtobefiledwiththeGovtstatingtheEqualisationLevywithheldandtheorganisationstowhichthepaymenthasbeen
made.ThisreturnisrequiredtobefiledannuallyandistobefiledinFormNo.1onorbefore30thJune of the next financialyear. This annual
returnistobeverifiedeitherthroughDigitalSignatureorthroughanElectronicVerificationCodebyanauthorisedsignatory.

CLARIFICATIONFROMGOOGLEREGARDINGEQUALISATIONLEVY
ItriedreachingouttoGoogletounderstandhowequalisationlevywillworkonthepaymentsmadetothemandhereistheresponseIreceived:

View1

GooglerespondedthatYes,EqualisationLevyisapplicable.

However, they also mentioned that as per the Terms and Conditions mentioned in Google Adwords, the advertiser has to bear any tax or govt
chargesontheservicesavailedbythem.Therefore,theadvertiserwillhavetopay6%TaxhimselfanddepositthesamewiththeGovt.

HereisascreenshotoftheresponseIvereceivedfromGoogle

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View2

AfriendofminealsosentthesamemailtoGoogleaskingforclarificationandhereceivedthemailstatingthatEqualisationLevyisnotapplicable.

AUTHORSTAKEONLEVYOFEQUALISATIONLEVYONGOOGLE
Googlehasgivendifferentopinionon2differentcategoriesofadvertisers.Inthefirstcase,theysaidthatEqualisationLevyisapplicable.Pleasealso
notethatinthe1stCase,theGoogleAddressmentionedisnotofIndia.Asinthe1stcase,thecompanytowhomthepaymentisbeingmadeis
outsideIndiathereforeEqualisationLevy@6%wouldbeapplicable.

However in the 2nd case, Google said that Equalisation Levy is not applicable. Please note that in the 2nd case the address mentioned is of
BangaloreandthereforeasthecompanyisbasedinIndiaEqualisationLevy@6%wouldnotbeapplicable.Inthiscase,ServiceTax@15%would
beapplicableasthecompanyisbasedinIndia.

Summary

EqualisationLevyapplicable@6%
IfServiceProvider*basedoutsideIndia
ServiceTaxnotapplicable
ServiceTaxapplicable@15%
IfServiceProvider*basedinIndia
EqualisationLevynotapplicable
*ServiceProviderintheabovetablereferstoGoogle,Facebook,Linkedin,Yahooetc

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CABOUT THEC
HARTERED AUTHOR
LUB
KaranBatra
APersonalFinanceenthusiast,Karanisthefounderofcharteredclub.comandlovestodiscussaboutMoneyrelatedmatters.

T RENDING

IncomeTaxonGiftsReceived

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TaxAdvice:7Thingstodobefore31stMarch

DeductionforInvestmentinNPSAccount

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