India Budget Series


The Finance Act, 2016 proposes to provide for an equalization levy of 6% of the amount of consideration for any specific service, received or receivable by a person, being non-resident, not having permanent establishment in India, from

– A person resident in India and carrying on business or profession or

– A non-resident having a permanent Establishment in India

However, such levy shall not be made

– If the service provider has a permanent establishment in India and these services are effectively connected with the permanent establishment

– If the aggregate amount of consideration from such specified services does not exceeds Rs. 1 lakh.

– If the payment is not for the purpose of carrying out business or profession

The provisions of Equalisation Levy shall not apply to the state of Jammu & Kashmir.

Specified Service means:

– online advertisement,

– any provision for digital advertising space or

– any other facility or service for the purpose of online advertisement and

– includes any other service as may be notified by the Central Government in this behalf


-income arising from providing specified services on which equalisation levy is chargeable is exempt from income tax

– Failure to deduct and deposit the equalisation levy shall lead to disallowance of expenditure (similar to Section 40(a)(ia))

– Where the equalisation levy is paid after the due date of filing returns, corresponding expenditure shall be allowed as deduction only for the previous year in which it was paid.

The provision seems to be a back door mechanism to tax online ads and other possible expenses paid/payable overseas on which TDS cannot be deducted owing to both domestic and DTAA restrictions. Possible expenses like ISP services, server charges and many more could well find their way under this clause in future. This seems to be a concerted effort to prevent base erosion.


Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe here for our 

Monthly Newsletter

Follow us here : 

Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Consent to display content from Youtube
Consent to display content from Vimeo
Google Maps
Consent to display content from Google
Consent to display content from Spotify
Sound Cloud
Consent to display content from Sound