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:
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
▶ Answer & Explanation
Correct answer: D. Neither 1 nor 2
The equalization tax on specified digital services, including online advertisements, was introduced through the Finance Act, 2016, not directly as an amendment to the Income Tax Act. Furthermore, while Double Taxation Avoidance Agreements (DTAAs) aim to prevent double taxation, the equalization levy is specifically designed as a withholding tax and its crediting in the home country depends on the provisions of the respective DTAA and the domestic laws of that country, which is not universally guaranteed or automatic.
Source: UPSC gs1 2018