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 :
[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option4″]
This question was previously asked in
UPSC IAS – 2018
Statement 2 is incorrect. Double Taxation Avoidance Agreements (DTAAs) are typically designed to address taxes on income. The equalization levy, as introduced, was a levy on the gross consideration for specified services, distinct from income tax. Whether it falls within the scope of specific DTAAs is complex and depends on the definition of ‘taxes covered’ in each treaty. Generally, standalone levies like the equalization levy are not automatically covered by DTAAs, and therefore, claiming a tax credit in the home country under standard DTAA provisions is unlikely or not straightforward.
– DTAAs primarily cover income taxes and may not apply to levies like the equalization levy, making tax credit claims under DTAA unlikely.
– The levy targeted business models of digital companies where traditional nexus rules for taxation were not effective.