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:

The Equalization Levy is a tax on online advertisement services provided by non-resident entities to Indian businesses.

Statement 1 is incorrect. The Equalization Levy was not introduced as part of the Income Tax Act. It is a separate levy under the Finance Act. It applies when an Indian resident pays more than Rs. 1 lakh to a non-resident entity (like Google or Facebook) for online advertising services.

Statement 2 is incorrect. Because the Equalization Levy is outside the scope of tax treaties (Double Taxation Avoidance Agreements - DTAA) that India has with other countries, foreign companies cannot claim a tax credit for it in their home country.

Neither statement 1 nor statement 2 is correct.

Sources:

• Insights on India