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 ✓ UPSC's answer
Why the answer is (d)
• The 6% equalisation levy (2016) on payments to non-residents for online advertising was India's first move to tax the digital economy.
• Statement 1 is wrong: it was enacted through Chapter VIII of the Finance Act, 2016 as a separate levy, deliberately kept outside the Income Tax Act.
• Statement 2 is wrong: because it is not an income tax, it falls outside DTAAs, so foreign firms cannot claim credit for it in their home countries.
• A 2% levy on e-commerce operators was added in 2020 and both were withdrawn in 2024–25 amid US pressure.
• Hence neither 1 nor 2, option (d).
Why the other options are wrong
- (a) 1 only
- Statement 1 is wrong: the levy is under the Finance Act, not the IT Act.
- (b) 2 only
- Statement 2 is wrong: no DTAA credit is available.
- (c) Both 1 and 2
- Both statements are wrong.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2018, held on 3 June 2018. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.