The Equalisation Levy is a tax introduced by the Indian government to address the taxation challenges posed by the digital economy, particularly targeting income earned by foreign companies from India without a physical presence. It was first implemented in 2016 and has since been expanded.

Key Features of the Equalisation Levy:

• Purpose:

• • It aims to tax digital transactions, ensuring that foreign e-commerce and digital service providers contribute to India’s tax revenue, even if they lack a permanent establishment (PE) in India.
  • Often called the "Google Tax," it addresses the imbalance between domestic and foreign companies in the digital space.
• Scope:

• • Initial Phase (2016): Introduced via Chapter VIII of the Finance Act, 2016, it imposed a 6% levy on payments for online advertising services, digital advertising space, or related facilities provided by non-resident companies to Indian residents or non-residents with a PE in India. This applies only if the annual payment exceeds ₹1 lakh (approximately $1,200 USD).
  • Expanded Phase (2020): The Finance Act, 2020 broadened the levy to include e-commerce supply or services by non-resident e-commerce operators, effective from April 1, 2020. This carries a 2% tax on gross consideration received from:
    • Sales of goods or services to Indian residents or users with an Indian IP address.
    • Sales of advertisements targeting Indian customers.
    • Sales of data collected from Indian users.
    • The threshold for this is ₹2 crore (approximately $240,000 USD) in annual revenue from these activities.
• Applicability:
• • Applies to non-resident entities without a PE in India.
  • For the 6% levy, the payer (Indian resident or non-resident with a PE in India) deducts and deposits the tax.

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