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First Time to Tax Digital Economy|Google Tax

There is another tax in the Town and it goes viral by various names – the ‘Google Tax’ or Amazon Tax or the ‘Facebook Tax’. All these names are giving one hint that this is something relates to e-commerce companies.

This move has been initiated to tax the incomes accrue to e-commerce companies which are operating outside India.

It was introduced in the budget 2016 that if any person or entity makes any payment which exceeds Rs. 1 lakh in a financial year to a non-resident foreign technology company need to withhold tax @ 6% on the gross payment. This non-resident concept means that those companies which do not have any permanent establishment in India.

Let’s take an example; suppose Mr X is running a successful business in Delhi and pay a certain sum of money to a foreign company, say, 5 lakh to advertise. Now, with the advent of this equalisation levy, Mr X have to withhold 6% of the amount i.e. Rs. 30,000 and pay the balance Rs.4,70,000 to the foreign company, and pay the withhold amount to the Government.

Now, it remains to be seen whether the foreign company is ready to bear the loss by accepting the lower margin or hike the prices of its services.

If the latter happens, which is most likely, then it is going to affect the pocket of Indian businessmen very badly.

This is an equalisation charge or levy. This levy is only applicable on those transactions which will be transacted between B2B.

Equalisation charge or levy only on specified Service:

This Google tax or equalisation levy has been charged on Specified services include only online and digital advertising or services available for digital space which includes the followings as well:

  • For storing or distributing digital content.
  • Use or right to use or download online music, movies games etc.
  • Services related to an online transaction.
  • Online news, online search, online maps, or GPS application

If Indian companies don’t deduct this equalisation levy against the payment made and don’t deposit it with the government, then those companies can not show this as business expenditure, which results in higher tax liability. Besides this, there are some other provisions which penalise the deductor in case of non-compliance such as

  • Equalization levy was deducted but not deposited: The penalty is equal to Rs. 1,000 for each day the failure continues.


  • Prosecution: If a false statement has been filed, the person may be handcuffed along with a fine.

Willy-nilly, this new tax has to be digested by the Industries in India along with other plethora of taxes residing in India such as service tax, VAT etc.

Tax Implication on CSR Expenditure

Section 135 of the companies Act, 2013 govern the provisions regarding the CSR spending of the business, which makes India as a leading country in the world that mandates to certain class of companies to spend a small part of their profit on social activities.

Applicability of CSR provision:

Companies having above attributes are required to spend at 2% of their average net profits made during the last three years on CSR activities as indicated under schedule VII.

Activities for CSR spending under Schedule VII:


Tax Implication on CSR activities:

Income tax Act, 1961 provide tax deduction for donation and contribution. There is also other section in the Income Tax Act, 1961, which is section 37 mandating certain deduction in respect of general business expenditure. Therefore, the business houses were contemplating some sort of deduction in respect of CSR spending in line with Income Tax provision.

But legislature’s intention was to treat this CSR spending as appropriation of profit rather than considering it as a charge on profits like any other expenses e.g. rent, electricity charges etc.

Is it possible to undertake these activities by establishing some other entities like trust or section 8 companies?

Most companies contemplating to open a separate entity because in this way companies are eligible to claim deduction under section 80 G.

Therefore, corporate are considering to work through these elements like altruistic trust or organizations which are establishments secured directly under the important concession of CSR expenditure under Income tax Act.

There are some relevant provisions under the Income Tax Act which must be bear in mind before launching CSR programme e.g. section 35C, 37 and section 80G.

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