Google Tax (Equalization Levy) In India

This article is all about Google Tax which is also known as Equalization Levy. This was introduced in India in the year, 2016 vide notification no. 37/2016: F.NO. 370142/12/2016-TPL with an intent to tax the Business to Business (B2B), E – Commerce transactions/Digital transactions.

1. Charge of Equalisation Levy:

Equalisation levy shall be charged @ 6% of the amount of consideration payable, for any specified service received or receivable from a non-resident, by –

i. A person resident in India carrying on any business or profession; or

ii. A non-resident having permanent establishment in India.

Equalisation levy shall not be charged in the following cases:

a) The non-resident providing specified service has a permanent establishment in India and the specified service is connected with such permanent establishment or

b) The specified service is not for the purpose of carrying out business or profession (i.e. for personal purpose) or

c) The aggregate amount of consideration payable for the specified service received or receivable does not exceeds Rs. 1 Lakh.

2. Which Services Come falls under Equalisation Levy?

As of now, this tax law is applicable only on online advertisements. This tax applies to advertisers, not publishers. Means it will not affect your Ad sense earning. If you Publish ads on your website with Ad Sense, this tax doesn’t apply because you are a publisher.

But if you are an advertiser and wants to publish your company’s/ product’s ads then this tax will be applicable to you. And for the better or worse the government is preparing rules to expand the list of services under this rule which may be including app marketing and many others.

For example: Let’s suppose you run an organization and need to pay Rs. 10 lakhs to a foreign company for using their online ad benefits like the way many of the populace use Google ads or Face book ads.

With this new tax, you have to withhold 6% of Rs. 10 lakh i.e. Rs. 60,000/– and need to pay the equalization of Rs. 9,40,000/- only. Google tax of Rs. 60,000/– should be paid to the legislature. Assuming that the companies will bear the loss of tax and do not increase their advertising rates.

Facebook, Google, Yahoo, and LinkedIn are major payers of this tax. Excluding the Linked In other companies have simply burdened the users with this additional tax.

In such case you have to withhold 6% of Rs. 10 lakh i.e. Rs. 60,000/ – and need to pay the equalization of Rs. 10,00,000/-. Google tax of Rs. 60,000/– should be paid to the legislature totaling to Rs. 10,60,000/-

Currently, the equalization levy is applicable only on online advertisements, but news of including cloud computing and online entertainment services have been reported, if this turns out to be true then companies like IBM, Microsoft, Amazon Web Services, Apple and Netflix will also be affected.

3. Some Relevant Definitions related to Equalisation levy:

A) “Specified service” means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf

B) “Permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on

C) “Online” means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network

4. What If An Indian Business Owner Or Company Fails To Deduct This Tax?

1. Any individual or entity fails to deduct this tax or equalization levy or doesn’t deposit it with the government, and then the entity will not be allowed to consider the expenses in calculating taxable profits. This will increase the taxable income, thereby hiking the company’s tax liability.

2. Payment of simple interest @1% for every month or part of a month where the equalisation levy collected is not credited to the account of the Central Government within the prescribed period.

(Republished with Amendments)