With reference to India's decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?
- 1.It is introduced as a part of the Income Tax Act.
- 2.Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the "Double Taxation Avoidance Agreements".
Select the correct answer using the code given below:
Answer & explanation
Answer: (d) Neither 1 nor 2
The 6 per cent Equalisation Levy was created as a separate chapter of the Finance Act, 2016, outside the Income-tax Act, 1961. Because it is not a tax on income, tax treaties do not cover it, so the foreign firm gets no treaty credit at home.
- ✗ 1. The Finance Bill, 2016 inserted a new chapter titled 'Equalisation Levy' in the Finance Bill itself (Chapter VIII of the Finance Act, 2016); the Income-tax Act only exempted the same income under section 10 to avoid double taxation.
- ✗ 2. The CBDT's e-commerce committee, which designed the levy, noted that as it is not charged on income, Double Taxation Avoidance Agreements do not apply and no tax credit is available in the country of residence.
- • Since then Since then the 6 per cent levy on online advertisement has been abolished with effect from 1 April 2025 (Finance Act, 2025).
Remember · Equalisation Levy (2016): 6% on payments to non-resident online-ad providers without a PE in India; enacted in the Finance Act, not the Income-tax Act; outside DTAAs, so no foreign tax credit.
Sources
- Memorandum explaining the provisions in the Finance Bill, 2016 (Direct Taxes), Union Budget 2016-17 ↗ “it is proposed to insert a new Chapter titled "Equalisation Levy" in the Finance Bill, to provide for an equalisation levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment ('PE') in India”
- Proposal for Equalization Levy on Specified Transactions: Report of the Committee on Taxation of E-Commerce (CBDT), February 2016 (third-party-hosted copy) ↗ · reference work “As the Equalization Levy is not charged on income, it is not covered by Double Taxation Avoidance Agreements or tax treaties. Thus, no tax credits under the tax treaties will become available to the beneficial owner in the country of its residence”
Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·