Vide Finance bill 2016 FM has proposed to levy 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.
Specified service here 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;
Permanent establishment includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.
Further, in order to reduce burden of small players in the digital domain, it is also provided that no such levy shall be made if the aggregate amount of consideration for specified services received or receivable by a non-resident from a person resident in India or from a non-resident having a permanent establishment in India does not exceed one lakh rupees in any previous year.
In order to avoid double taxation, it is proposed to provide exemption under section 10 of the Act for any income arising from providing specified services on which equalisation levy is chargeable.
It is further proposed to provide that the expenses incurred by the assessee towards specified services chargeable under this Chapter shall not be allowed as deduction in case of failure of the asseseee to deduct and deposit the equalisation levy to the credit of Central government.
Such provisions are applicable from 1st June, 2016
The levy clearly is targeted to tax various online advertisements companies like Youtube , Google , Facebook , Twitter etc; ,
For Example :- Moon Cricket Pvt Ltd pays 2 crores as advertising fees to Google the possible tax implications if google accepts the levy and if it doesn’t are :-
| Particulars | Google accepts the levy |
Google not accepts the levy | |
| Advertisement Cost | 7,500,000 | 7,978,723 | {75,00,000*100/(100-6)} |
| Less:Levy @ 6% | 450,000 | 478,723 | |
| Net Payment | 7,050,000 | 7,500,000 |
Credit for above Example goes to CA Vinay Lunkad S and his Article at following link :-
Please Read following article for full details, relevant Extract from Finance Bill, Memorandum etc:-
