Equalisation levy of 6% on services pertaining to cross border digital transactions will come into effect from 1st June, 2016. CBDT had notified the rules for equalisation levy and the said tax will come into force from 01-06-2016.

The specified services covered by the levy include online advertising, provision for digital advertising space and any other service to be notified by government.

As per the Finance Act, 2016 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 with hold tax @ 6%  of gross amount paid as equalisation levy. This levy will only applicable  to business to business(B2B) transactions. Non-resident companies will not get credit in their home countries on transactions subject to the levy.

The cost of advertisement for startups will increase due to the introduction of this levy as the payments to Google, Facebook, Twitter and other social media sites as well as website/blog designing, hosting, promotional emails by non-residents who doesn’t have permanent establishment in India will be subject to this levy.