18 Jul 2016 13:06 IST

App purchases not to be brought under tax net for now

At present, the scope of the equalisation levy covers only online advertisement services   -  The Hindu

Equalisation levy, whenever enforced, will impact non-resident multinationals

Purchases of software applications (apps) through the internet or telecom networks do not for now come under the ambit of the new tax on digital economy.

However, there is a high probability of such purchases being brought under the scope of the equalisation levy in the coming days, say tax experts.

“Even if app purchases are covered at a later date, it will have a bearing on non-resident multinational companies such as Google, Apple, and so on. The apps sold by Indian developers may not be affected by this levy,” Jiger Saiya, Partner - Direct Tax, BDO India, told BusinessLine.

Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co, a law firm, said that at present the scope of the equalisation levy covers only online advertisement services.

It is likely that in the future, apps downloaded may also be brought under tax net, he said.

The government-appointed high-level committee on e-commerce taxation had made a recommendation to include this service within the scope of the equalisation levy, Singhania said.

Asked if the levy would hurt app developers in India, Rajiv Chugh, Tax Partner, EY, said the levy was basically for getting non-residents within the tax net. “Indian app developers will not be adversely affected as long as they are paying taxes in India”, he added.

Chugh also said that app downloads of foreign developers will become costlier by a minimum of 6 per cent, depending on the grossing-up requirements in cases where the aggregate payment exceeds ₹1 lakh.

Payment by a person for personal purposes will not invite the equalisation levy, he added.

Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a CA firm, said that as of now, there was no equalisation levy on app downloads (including paid ones).

Once this is brought within the scope of the levy, it will apply, but only on those transactions entered into with non-resident app owners and Operating System Owners (OSO) such as Google, Apple, and that too when the payment is made by their Indian unit or subsidiaries.

However, the levy is applicable when the transaction during the year exceeds ₹1 lakh.

This levy is not on payments made by individuals or Hindu Undivided Families that do not have income chargeable under the head profits and gains from business or profession, Maheshwari said.

As and when app downloads are subjected to the equalisation levy, app owners outside India will have to bear this levy.

The compliance for OSOs will also increase in this case and they too may look to recover the cost for increased compliance.

Typically, to recover the same, the costs of these application downloads may likely go up as the burden of the extra cost is shifted to the customers, he said.

In India, the equalisation levy — introduced with effect from June 1 — is neither an income tax nor a service tax.

Globally, this levy is understood to be part of the income tax structure.