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The Union Government has proposed abolishing the Equalisation Levy which will benefit advertisers on digital platforms like Google, X (formerly Twitter), and Meta by reducing tax burdens.
Equalisation Levy (Digital services tax)
Equalisation Levy, introduced in 2016, is a direct tax imposed on foreign digital service providers to tax income generated from digital transactions in India.
It aims to ensure fair taxation of digital businesses that do not have a physical presence in India, aligning with the BEPS (Base Erosion and Profit Shifting) Action Plan to curb tax avoidance.
It is deducted at the time of payment by the service recipient if:
The payment is made to a non-resident service provider.
The annual payment to a single provider exceeds Rs. 1,00,000 in a financial year.
The Equalisation Levy initially applied to online ads (6%) and was expanded in 2020 to cover digital services and e-commerce (2%), with the latter abolished in August 2024.
Exemptions: It does not apply if the non-resident has a permanent office in India, payments are below Rs.1 lakh, or the income is covered under Section 10(50) to prevent double taxation.
Income taxed as royalties or fees for technical services is excluded.
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