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  • 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.
  • GOOGLE TAX: EQUALISATION LEVY
  • Pros
    • Will promote big companies to make permanent establishments in India
    • Increase in government earnings
  • Cons
    •  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