The centre is planning to introduce ‘equalisation levy’ of 6-8% of gross payment if the provider of service is a foreign entity without a ‘permanent establishment’ in India.
It is colloquially known as Google Tax.
In order to tap tax on income accruing to foreign e-commerce companies from India, the Finance Act 2016 said a person making payment to a non-resident (who does not have a permanent establishment) exceeding in aggregate Rs 1 lakh in a year will withhold tax at 6 per cent of gross amount paid, as equalisation levy.
The levy will only apply to business to business transactions.
Only payments of over Rs 1 lakh to be covered by this levy.
Will promote big companies to make permanent establishments in India
Increase in government earnings
raise the cost of a whole range of services provided online.
undermine the Digital India and Startup India programmes by discouraging innovation and forcing startups to cut down on advertising
If other nations follow India’s lead and impose similar taxes on services provided from India, India’s IT firms’ cost advantage could be significantly eroded, rendering them non-competitive