As per the new amendments proposed in Finance Act 2016, Equalization levy or digital tax on online advertisements will not apply on or after April 1, 2025.
Equalization Levy
- It is a direct tax introduced by Finance Act, 2016, taxing digital transactions i.e. income accruing to foreign e-commerce companies from India.
- This covers income from advertising also which is aimed at taxing business to business transactions.
- Finance Act 2020 has extended scope of this levy to e-commerce supply and services.
Reasons for its Imposition
- Fair Competition: It aimed to level the playing field for domestic and international companies.
- Bridging Tax Gaps: Prevents companies from avoiding taxation due to a lack of physical presence in India.
- Taxing Foreign Digital Companies: Ensures that foreign e-commerce giants contribute to India's tax system.
- Revenue Collection Opportunity: Recognizes the boom in digital transactions, further accelerated by COVID-19.
Associated Concerns
- Trade friction with the US: Foreign trade barrier report mentions Equalization levy as barrier to overseas trade.
- Risk of Retaliatory Tariffs: Other nations may impose countermeasures, affecting Indian companies operating overseas.
- Double Taxation & Compliance Burden: Foreign companies may face dual taxation, increasing their costs.
Transactions subjected to equalisation levy
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