The Central Board of Direct Taxes (CBDT) has notified rules regarding equalisation levy, a tax which will be levied on income arising to companies like Google, Yahoo, Facebook, for providing services like online advertisements to professionals and businessmen of India.

As per the Finance Bill 2016, a person making payment to any non-resident (who doesn’t have a permanent establishment in India) exceeding Rs 1 lakh in a year will have to deduct tax at the rate of 6 per cent from gross amount paid, as equalisation levy. So, equalization levy will have to be deducted by the person or business availing the services from these companies and deposit the tax collected to authorized banks

Clarifications regarding Equalization Levy

• It will be levied only on payment made for certain specified services and facilities provided by multinational enterprises not having a permanent establishment in India
• Only payments exceeding Rs 1 lakh made “by a person resident in India or a permanent establishment of a non-resident person to a non-resident enterprise” be covered under the levy.
• It will not be levied on goods to be imported.  It will also not be levied on services that are not specified, even if such services are procured by making payments from within India over the internet.
• Payments to Residents & Permanent Establishments of Non-Residents not Liable.
• Equalization Levy will be levied only where payments for specified services are made by a resident of India or a permanent establishment of a non-resident for the purpose of its business in India. Payments made by a non-resident from within India will not attract Equalization Levy, unless it has a permanent establishment and payment is borne by that permanent establishment in India.
• The income of a non-resident from services that are covered by Equalization Levy, and on which Equalization Levy is paid will be fully exempt from income-tax.
• Tax Treaties (Double Taxation Avoidance Agreements) Not Applicable on Equalization Levy – No Foreign Tax Credit in the other country
• The Equalization Levy will be outside Income-tax Act. It is not a tax on income, as it is levied on payments. It is therefore also payable by enterprises not making any net profits.
• A deductor that is required to gets its books of accounts audited, would be expected to obtain a certificate that Equalization Levy has been deducted and paid to the Government as per law. No such obligation would be there for a person, who is not required to get its books audited.

Click here to download : Report of the Committee on Taxation of E-Commerce On EQUALIZATION LEVY