UPSC Prelims 2018 · Question 8 of 99
UPSC Prelims 2018 question on Equalisation Levy
- ExamUPSC CSE
- Year2018
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicTaxation
- DifficultyHard
- TypeStatement
With reference to India's decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?
1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities not offering advertisement services in India can claim a tax credit in their home country under the 'Double Taxation Avoidance Agreements'.
Select the correct answer using the code given below:
Show answer
Answer: D. Neither 1 nor 2
Verdict
Neither statement is correct, so the answer is (d) Neither 1 nor 2.
Statement by statement
Statement 1 is INCORRECT. The equalisation levy was introduced in 2016, but not as part of the Income Tax Act. It came in as separate legislation through the Finance Bill, aimed at income accruing to foreign e-commerce companies from India in business to business transactions.
Statement 2 is INCORRECT, and it fails as a direct consequence of the first point. Precisely because the levy sits outside the Income Tax Act, global firms cannot claim a tax credit at home under Double Taxation Avoidance Agreements, since treaty relief attaches only to taxes the treaty covers.
Source
Economic Times report on equalisation levy collections from digital service providers.
How to crack it
The statements are linked, not independent, and spotting that is the whole game. Settle that the levy sits outside the Income Tax Act and statement 2 must fall with it, because DTAA credit presupposes an income tax. That one dependency collapses four options to one. When two statements in a tax question share a premise, resolve the premise once.