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 :
✓ Correct answer: d) Neither 1 nor 2 Indian Economy 301
ExplanationIn 2016, India introduced a 6% Equalization Levy tar- geting income from online advertisement services provided by non-resident entities to Indian businesses.This measure aimed to tax digital transactions and level the playing field between do- mestic and foreign service providers.In 2020 it was expanded to include a 2% levy on e-commerce transactions by non-resident operators.Statement 1 is incorrect: The Equalization Levy was intro- duced through the Finance Act, 2016 as a separate chapter and is not part of the Income Tax Act.This distinction ensures that the levy operates independently of the existing income tax framework.Statement 2 is incorrect: Non-resident entities cannot claim a tax credit for this levy in their home countries which can po- tentially lead to double taxation.It doesn’t fall within the scope of Double Taxation Avoidance Agreements (DTAAs).Its ex- clusion from the Income Tax Act raises challenges regarding in- ternational tax credits and potential double taxation for foreign entities.232
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