The Google Tax was brought in by the Honorable Finance Minister of India, Arun Jaitley in the Union Budget 2016. However, it is known as Google Tax around the world, yet in India it is known as the “EQUALIZATION LEVY”.
WHAT IS THIS GOOGLE TAX (EQUALIZATION LEVY)?
As per the Union Budget 2016, the budget states that any individual or entity who use Non-Resident technology services shall pay 6% of the total gross payment as the equalization levy to the government, but only if the total gross payment exceeds one lakh rupees for the single financial year. It is known as Google Tax or Equalization Levy.
This Law is specially made for the foreign e-commerce companies who has no permanently fixed establishments in India.
WHICH SERVICES COME UNDER THIS LAW?
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.
WHAT IF AN INDIAN BUSINESS OWNER OR COMPANY FAILS TO DEDUCT THIS TAX?
The Budget has proposed that any individual or entity fails to deduct this tax or equalization levy or doesn’t deposit it with the government, 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.