New Delhi: An equalization levy of 6 per cent on services pertaining to cross border digital transactions will come into effect from June 1.
At present, equalization levy is leviable only on payments relating to online advertisements, said C A Gupta, partner at Deloitte Haskins and Sells.
The Central Board of Direct Taxes (CBDT) has notified the rules for equalization levy and said the tax will come into force from June 1.
In order to tap tax on income accruing to foreign e-commerce companies from India, the Finance Act 2016 said a person making payment to a non-resident (who does not have a permanent establishment) exceeding in aggregate Rs 1 lakh in a year will withhold tax at 6 per cent of gross amount paid, as equalization levy.
The levy will only apply to business to business transactions.
As per the BEPS action plan, OECD has recommended to impose a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition of an equalization levy on consideration for certain digital transactions.
"Considering that all the operational aspects have been addressed, once the provision for equalization levy is brought in force, the payers would require to be mindful of the compliances with equalization levy in relation to payment towards online advertisements," said Mr Gupta.
Last month, Internet and Mobile Association of India (IAMAI) had said that levy on online advertisement revenue of foreign companies would "severely raise the cost of doing business" for Indian tech start-ups.
The Committee on Taxation of E-commerce, set up by the CBDT, in its report submitted to the government in February had suggested introduction of equalization levy between 6 per cent and 8 per cent on amount paid to non-resident by an Indian resident for specified digital services.
The specified services would include online advertising or any services, rights or use of software for online advertising, including advertising on radio and television, designing, hosting or maintenance of websites, digital space for website, e-mails, blogs, facility for online sale of goods or services or collecting online payments.