Google tax, Krishi Kalyan Cess to compound service tax burden

01 Jun 2016


A hoard of new levies, including the Krishi Kalyan Cess and the so-called ''Google tax'', will compound the burden of service tax to levels that could influence inflationary pressures in the country. While a 0.5 per cent cess will take service tax rates to 15 per cent for most services, a 6 per cent ''Google tax'' on cross-border digital transactions will place a new burden on e-commerce start-ups.

The Central Board of Direct Taxes (CBDT) has notified rules regarding equalisation levy, a tax which will be levied on income arising to companies like Google, Facebook, for providing services like online advertisements to professionals and businessmen of India.

As per the Finance Bill 2016, a person making payment to any non-resident (who doesn't have a permanent establishment in India) exceeding Rs1 lakh in a year will have to deduct tax at the rate of 6 per cent from gross amount paid, as equalisation levy. So, equalisation levy will have to be deducted by the person or business availing the services from these companies and deposit the tax collected to authorised banks.

Also known as "Google tax", equalisation levy was announced by the Finance Minister Arun Jaitley in this year's Budget, the rule comes into effect from today (1 June). The levy will, however, impact smaller firms more than Google or Facebook, which enjoy strong presence in the online advertisement space and are unlikely to take hit on their revenues.

There is all possibility that the 6 per cent  equalisation levy would go up in the future and may encompass more services as mentioned in the report of the Committee on Taxation of E-commerce, set up by the CBDT.

This could "severely raise the cost of doing business" for Indian tech startups.

The Committee on Taxation of E-commerce, set up by the CBDT had submitted its report to government in February which had suggested an equalization levy of 6-8 per cent on amount paid to non-residents by resident Indian for specified services.

With the imposition of Krishi Kalyan Cess (KKC), the total incidence of service tax will increase to 15 per cent, thus making a whole lot of servies, including eating out, phone usage, air and rail travel, expensive.

There is a possibility that the levy could at least partially affect businesses that offer these services.

Also payment in cash for buying goods and services worth more than Rs2 lakh with the exception of jewellery will attract 1 per cent tax collected at source (TCS) from today. The existing TCS of 1 per cent on cash purchase of over Rs5 lakh of jewellery and over Rs2 lakh of bullion will continue, tax officials have said.

Besides, sale of options will also attract increased Securities Transaction Tax (STT) of 0.05 per cent from today. Currently, STT is 0.017 per cent.

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