Google Tax or Equalisation Levy from 1st June 2016

In the basket of Indian taxes, here comes a new addition which is commonly known as the “Google Tax” or “Equalisation Levy”. This is an initiative taken by the Government of India to tax the digital economy i.e. to collect taxes from the internet/technology giants who earn money from Indian businesses for specific digital services.

In simple terms,this has been levied to bring the revenue earned by non resident companies from online advertisements under the tax net.

“Google Tax” or “Equalisation Levy” shall be charged @ 6% for the specified services w.e.f. 1st June,2016. The same shall be deducted on payments made by Indian residents to Non resident service providers, where the amount paid is in excess of Rs.1 lakh during the financial year.

Moreover,the same shall be allowed as a business expense while calculating the taxable profits.But,if the business fails to deduct or deposit the “Equalisation levy”,the expense shall not be allowed to compute the taxable profits.

Initially,following have been covered under the Specified Services :-

  • Online Advertisements.
  • Provision for Digital Advertising Space.
  • Any service for purpose of online advertisements.

Slowly and gradually,more services can be brought under its ambit.

In the present scenario,this move will impact people who promote their businesses with the help of online advertisements.

If you display online ads via Facebook,Google,Yahoo,Twitter or any such platform and the payment you make exceeds Rs.1 lakh during the year,you will have to deduct Equalisation Levy @6% and pay it to the government.

Lets clarify this with the help of an Example :

You are paying Rs.300000 to Facebook for online advertising. Now,with the introduction of this tax, you need to deduct an amount of Rs.18000 for Equalisation levy to be paid to the Government of India, and the balance of Rs.282000 shall be paid to the foreign company.

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Now,what impact this tax will have on the international companies is yet to be seen.The Indian businesses might have to bear the losses themselves by the increased billing/increased rates on the online advertisements.

Indirectly,it shall be the Indian receiver of service who is likely to be affected.If there is a hike in the advertising rates by the service provider, the service recipient shall be forced to bear the tax burden thereon as well.

Some,experts consider it to be a welcome step while others feel that this might hinder the growth of small and medium sized enterprises especially the rising Indian startup industry.

The actual impact will be noticed only after some time.

It has been enforced with good intentions and expectations, lets see how positively the results come out.

If you want to add something further, any opinions or comments thereon, feel free to share…

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