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Why Facebook and Google are under I-T scanner

By Shrimi Choudhary
July 17, 2019 19:37 IST
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Taxmen have come across instances where global firms - charged a withholding tax of 6 per cent - are under-reporting the exact income they earned from an Indian user.

Illustration: Uttam Ghosh/

The income-tax (I-T) department has decided to scrutinise tech giants such as Google and Facebook to check underreporting of their revenues in India, which are not commensurate with the scale of their advertising business in the country, Business Standard has learnt.


Taxmen have come across instances where global firms - charged a withholding tax of 6 per cent (known as equalisation levy) - are underreporting the exact income they earned from an Indian user.

In India, these companies aren’t subject to a corporation tax of 40 per cent that foreign companies have to pay, but 6 per cent collected from advertisers on Google and Facebook as withholding tax.

The withholding tax was introduced by the Modi government in 2016.

The move is in line with the action plan drawn up by Central Board of Direct Taxes (CBDT) to nab tax evaders for the current fiscal year.

The CBDT wants to do survey and spot verifications for detection of non-compliance pertaining to withholding tax requirements.

“Since India operations of these companies act as resellers of their parent companies’ services, these revenues reported in India are not reflective of the actual advertisement revenues earned from users in India,” said an I-T official.

According to the CBDT, the assessing officer can only access form 1 (to file equalisation levy), which is for the Indian resident payer of the levy. However, the levy actually relates to income of the non-resident recipient and needs to be correlated with the gross receipts of that non-resident.

The apex body directed the international taxation department to examine all the receipts raised by these global firms and match those with the payments made.

Further, the tax department is checking whether the service provider is deducting tax properly and depositing the said amount to the exchequer.

Since its inception, India has collected Rs 1,000-odd crore from the equalisation levy.

However, it was much less than the activities by these firms carried out in India.

That is why the tax department is also planning to expand the services under the Google Tax, which is currently limited to digital advertisements.

In the Finance Bill, 2018, former FM Arun Jaitley sought to expand the scope of what constitutes income accrued in India by amending Section 9 of the I-T Act - a move that could have implications not just for Facebook and Google, but other tech companies like Amazon, Uber, and Twitter.

The clause now defines significant economic presence as “transaction in respect of any goods, services or property carried out by a non-resident in India, including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed”.

Secondly, it also includes “systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means”, while defining those with a significant economic presence in the country.

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Shrimi Choudhary in New Delhi
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