15 Jul 2017Posted By: Pulkit Gupta


ONLINE ADVERTISMENT TAX HITS INDIA's STARTUPS

Startups, especially e-commerce startups, use to seek customers substantially through online advertisement using services of Google, Yahoo, Facebook, Twitter, Linkedin, etc. 

One side GOI taking initiative to support Startups facing financial crunch and other side slapping costlier online advertisement impacts which takes major portion of every startup budget.

With effect from 1st June 2016, Government of India imposed equalisation tax at the rate of 6% on online advertisement provided by foreign advertisement service providers like Google, Yahoo, Facebook, Twitter, Linkedin.

Hence, the main source of obtaining internet customer leads (i.e. online advertisement) getting costlier which will hit startups.

 

EQUALISATION LEVY @ 6% ON DIGITAL ONLINE ADS W.E.F 01.06.2016

Every Indian e-commerce website enjoying google & others ads services requires to *deduct & deposit tax with government at the rate of 6% of aggregate value of ads services if availed from non-resident advertisement providers

However, the above tax shall be levied only when if ads services availed in excess of Rs.1 Lac in each financial year.

Further, the equalisation tax shall not be leviable on Indian organization registered in state of Jammu & Kashmir.

 

*DEDUCT

Indian ads service users required to deduct 6% tax from “google & other ads service provider” & deposit with GOI.

However, the major ads provider like Google, Yahoo, Facebook, Twitter, Linkedin on their terms & conditions accepted by Indian users that any taxes or government charges incurred on their services availed shall be borne by users itself.

Hence, Indian ads users has to pay equalisation taxes from their own pockets.

 

GOOGLE TWIST – Google claims NO equalisation tax shall be levied

Recently, google announcing below mail to their advertisement clients as follows

This is to inform you that as per the Notification No. 37/ 2016: F.No. 370142/12/2016-TPL dated 27 May 2016 read with Finance Act, 2016, Government of India has levied an ‘Equalisation Levy’ on provision of online advertisement services or any other service or facility for the purpose of online advertisement provided on or after 1 June 2016 by a Foreign Company to specified customers in India.

We wanted to update you that this levy is not applicable to your use of the AdWords Program with respect to your contract and payment for digital advertising services to Google India Private Limited (Indian Company) and accordingly there is no action required at your end. The levy impacts our cost of business operations in India and we are working through the implications."

In other words, Google has a permanent establishment in India and the above equalisation tax leviable only on establishment outside India. Hence Google India Private Limited not liable to equalisation tax.

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