Equalisation levy of 6%, applicable from June 1

The Dollar Business Bureau

The government on Monday notified the rules for implementing equalisation levy (EQL) or 'Google tax' for taxing the payment transactions for foreign digital firms by Indian businesses that was announced in the Union Budget. 

An EQL of 6 percent on services relating to cross border transactions of digital nature will come into force from June 1, 2016. The tax will only be applicable on business-to-business transactions.

The Central Board of Direct Taxes (CBDT), in a circular, has announced the rules for EQL and mentioned that the tax will be effective from June 1.

The Finance Act 2016 stated that an entity making payment to an overseas firm, which does not have an establishment in India, exceeding Rs 1 lakh a year is liable to pay tax at the rate of 6 percent on the gross value paid, as EQL.

Finance Minister Arun Jaitley had said that EQL, derived out of Organisation for Economic Cooperation and Development’s (OECD) project of Base Erosion and Profit Sharing, will be applied on payments done by entities for particular digital services to an overseas e-commerce entity not having a permanent establishment in the country. 

The purpose of the levy is to indirectly tax e-commerce giants for money they earned from advertisers in India, by levying a tax on the payments made by these advertisers. Facebook and Google are among the companies to be hit by the levy.

In April, Internet and Mobile Association of India (IAMAI) had stated that the tax on the revenue from online advertisement by international firms would “significantly enhance the cost of doing business” for technology start-ups in India.

The EQL was based on the recommendations of a committee set up by the CBDT, also comprising representatives from the industry.

In its report, the committee had suggested introducing an equalisation levy between 6 percent and 8 percent on amount paid to overseas entities by an Indian resident for particular digital services.