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 that offer 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:

The correct answer is Neither 1 nor 2.

Explanation:

Statement 1 is incorrect: The Equalization Tax (often referred to as the "Google Tax") was introduced in India by the Finance Act, 2016 (Chapter VIII), and not as a part of the Income Tax Act, 1961. It is a separate direct tax levied on specified digital/online services supplied by non-resident e-commerce operators or service providers.

Statement 2 is incorrect: Since the equalization tax is levied outside the scope of the Income Tax Act, 1961, and is governed by Chapter VIII of the Finance Act, 2016, non-resident entities receiving these digital payments cannot claim a foreign tax credit in their home countries under Double Taxation Avoidance Agreements (DTAAs). DTAAs primarily cover taxes on income (income tax), whereas equalization tax is not categorized as an income tax covered under standard DTAA treaties.

Therefore, neither of the given statements is correct.