Economy : Tax Structure In India

Q 3 / 12

UPSC CSE Prelims 2018

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 :

EXPLANATION

Correct Option (d)

Explanation

Statement 1 is incorrect. The Equalisation Levy was introduced in India through Chapter VIII of the Finance Act, 2016. It operates as a separate levy and is not part of the Income Tax Act.

Statement 2 is incorrect. The Equalisation Levy is an indirect tax on digital transactions and falls outside the purview of the Income Tax Act. Consequently, non-resident entities cannot claim tax credits for this levy under Double Taxation Avoidance Agreements (DTAAs), as DTAAs typically apply to income taxes.

Incorrect Options

Options (a), (b), and (c) are incorrect because both Statement 1 and Statement 2 are factually inaccurate regarding the Equalisation Levy. Statement 1 incorrectly states its inclusion in the Income Tax Act, and Statement 2 incorrectly claims eligibility for DTAA tax credits.

SOURCEIndian Economy by Ramesh Singh, Chapter on Taxation