An ‘equalisation tax’ of 6% has been introduced in the Budget, making it the first step India has taken to tax digital revenue. This ‘tax’ is a 6% deduction that would need to be made by an Indian payer on payments to non-resident entity for particular B2B services, such as advertising. This levy will have an adverse effect on the base line profits of online biggies such as Google, Yahoo, and others. These companies earn huge revenues from advertisements from businesses in India – and this tax is now being referred to as ‘the Google Tax’. This 6% levy would need to be deducted by businesses in India that make payment in excess of Rs.1 lakh collectively in one financial year to any non-resident service provider as mentioned above, for certain services. As of now, this ‘Google Tax’ will encompass online advertisements, digital advertising space or any other service required for online advertisements. However, industry experts fear that this list could expand to include many more digital services. While the intent currently may be to levy only 6% on online advertising for amounts that exceed Rs.1 lakh per year, the fact is that this proposal is wide in its scope and provides enough leeway to the government to expand the ‘specified services’ in the future. Some of the other services that possibly could come under the gamut of this ‘equalization levy’ are e-books, music, games, and education – to name but a few. This levy poses to be a double-whammy for the companies mentioned because they would not be able to claim tax credit in their home country since it is not a tax on income. They would also not be able to get a reduced tax rate under a tax treaty. This ‘proposal’ also recommends that Indian payers who would not deduct the equalization levy, will be disallowed such expenditure from computing their taxable profits. This means that the taxable income will become higher by the amount of the disallowed expenditure, translating to higher tax outflow.