India’s Central Board of Direct taxes today released a notice announcing details of a new 6 percent tax that will be imposed on payments made to nonresidents for online advertising beginning June 1.
The tax, called an “equalization levy,” was first announced in Budget 2016–17 by Finance Minister Arun Jaitley. It applies to payments exceeding Rs 1 lakh (USD 1,488) made in one year by a Indian business entity to a non-resident that does not have a permanent establishment in India.
In such cases, the Indian business must withhold and pay tax equal to 6 percent of the gross amount paid to the nonresident company. The tax is based on OECD/G20 base erosion profit shifting guidance on taxation of digital economy and is meant to remove tax advantages to companies that avoid having a permanent establishment in India.
Some have speculated that the government will make more categories of digital goods and services subject to the levy at a later date.
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