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 :
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Answer: D. Statement 1 is wrong: the 6% equalisation levy was introduced through Chapter VIII of the Finance Act, 2016, not as part of the Income Tax Act. Statement 2 is wrong: because it is not an income tax, it is outside tax treaties, so foreign firms cannot claim credit for it under DTAAs. So neither.
Watch for: The levy is a tax on income from ads, so students assume it sits in the Income Tax Act.
Why the other options are wrong
- A. Wrong because the levy is under the Finance Act, 2016, not the Income Tax Act.
- B. Wrong because DTAAs cover income taxes, and the levy is kept outside the Income Tax Act.
- C. Wrong because both statements are false.
Source to check: Finance Act, 2016, Chapter VIII (Equalisation Levy), Sections 163–180; Income Tax Department notification 2016
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.