My client paid a foreign platform for online advertising. Was it required to withhold six per cent equalisation levy, what was the threshold below which it was not, and from when did that levy stop?
The six per cent levy is charged by section 165 of the Finance Act, 2016 — it is not in the Income-tax Act, and a reader who looks for it there will not find it. It is charged on the amount of consideration for any specified service received or receivable by a NON-RESIDENT from (i) a person resident in India carrying on business or profession, or (ii) a non-resident having a permanent establishment in India. It is not charged in three cases: where the non-resident providing the service has a permanent establishment in India and the service is effectively connected with it; where the aggregate consideration for specified service received or receivable in a previous year by that non-resident from that payer does not exceed ONE LAKH RUPEES; and where the payment is not for the purposes of carrying on business or profession. Sub-section (3) ends the charge: it does not apply to any consideration for any specified service received or receivable by a person on or after 1 April 2025.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2016-06-01, reported as Section 165 of the Finance Act, 2016, reproduced in full, including sub-section (3), by the High Court of Judicature at Madras at paragraph 9 of its order dated 1 June 2026 in W.P. No. 6176 of 2022 (neutral citation 2026:MHC:1822); sub-section (3) re-read through an independent fragment query on the same document; the cross-reference to section 165 in section 165A(2)(ii) read on incometaxindia.gov.in/w/section-165a (Year: 2016). It bears on section 165, section 165(1), section 165(2), section 165(3), section 164, section 165A, section 166, section 163, section 40(a)(ib), section 10(50) of the Income Tax Act 1961, in How Tax Law Is Read and Assessment & Scrutiny matters.
The one lakh threshold is per payer, per non-resident, per previous year, and is drawn by reference to the consideration received or receivable by the non-resident from that payer — not by reference to the payer's total advertising spend and not by reference to a single invoice. That is how most disputes about the six per cent levy start. The third exclusion, in section 165(2)(c), is the one most often overlooked: a payment for online advertisement that is not for the purposes of carrying out business or profession is outside the charge altogether, which is why the levy never reached individuals advertising privately. The permanent-establishment exclusion in section 165(2)(a) matters because it is the point at which the levy and the ordinary income-tax charge are kept apart: if the non-resident has an Indian permanent establishment with which the service is effectively connected, the receipt is taxed as business profits and the levy is not charged. And the cut-off in sub-section (3) is drafted by reference to when the consideration is received or receivable, not by reference to a financial year, so a payment falling due in March 2025 and paid in April 2025 needs the section read carefully rather than assumed. Nothing about the cut-off closes an earlier year: consideration received or receivable before 1 April 2025 is still chargeable and the section 40(a)(ib) disallowance for not paying it still bites.
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Not a judgment. Section 165 of the Finance Act, 2016, as reproduced by the Madras High Court at paragraph 9 of its order of 1 June 2026, reads: '165. (1) On and from the date of commencement of this Chapter, there shall be charged an equalisation levy at the rate of six per cent of the amount of consideration for any specified service received or receivable by a person, being a non-resident from- (i) a person resident in India and carrying on business or profession; or (ii) a non-resident having a permanent establishment in India. (2) The equalisation levy under sub-section (1) shall not be charged, where- (a) the non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment, (b) the aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident from a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed one lakh rupees, or (c) where the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession. (3) The provisions of this section shall not apply to any consideration for any specified service received or receivable by a person on or after the 1st day of April, 2025.' The definition on which the charge turns is in section 164, and the operative words of it, as quoted in the same order at paragraph 10, are: '"specified service" means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf.'
Not a judgment. The statutory position is that the six per cent equalisation levy is imposed by section 165 of the Finance Act, 2016 and not by the Income-tax Act; that it is charged on consideration for specified service — online advertisement, provision for digital advertising space, or any other facility or service for the purpose of online advertisement — received or receivable by a non-resident from an Indian resident carrying on business or profession or from a non-resident with an Indian permanent establishment; that it is not charged where the service is effectively connected with the provider's own Indian permanent establishment, where the aggregate consideration from that payer in the previous year does not exceed one lakh rupees, or where the payment is not for the purposes of carrying on business or profession; and that by sub-section (3) it is not charged at all on consideration received or receivable on or after 1 April 2025, with everything before that date remaining chargeable.
Not a judgment; no judicial reasoning is stated for the section itself. On how the section is to be read, the Madras High Court drew two conclusions from its text at paragraph 10 of the Zoho order: that the levy 'is charged on the consideration received or receivable by a non-resident from either a person resident in India and carrying on business or profession or a non-resident having a permanent establishment in India', and that 'Such consideration should have been received for a specified service.' At paragraph 11 it added that where the service is provided by one non-resident to another non-resident, 'on a textual reading of Sections 165 and 164, equalization levy cannot be imposed on the petitioner unless reimbursement also falls within the scope of specified service.'
(3) The provisions of this section shall not apply to any consideration for any specified service received or receivable by a person on or after the 1st day of April, 2025.
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Handle my notice → Ask a CA on WhatsAppThe six per cent levy is charged by section 165 of the Finance Act, 2016 — it is not in the Income-tax Act, and a reader who looks for it there will not find it. It is charged on the amount of consideration for any specified service received or receivable by a NON-RESIDENT from (i) a person resident in India carrying on business or profession, or (ii) a non-resident having a permanent establishment in India. It is not charged in three cases: where the non-resident providing the service has a permanent establishment in India and the service is effectively connected with it; where the aggregate consideration for specified service received or receivable in a previous year by that non-resident from that payer does not exceed ONE LAKH RUPEES; and where the payment is not for the purposes of carrying on business or profession. Sub-section (3) ends the charge: it does not apply to any consideration for any specified service received or receivable by a person on or after 1 April 2025. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 165, section 165(1), section 165(2), section 165(3), section 164, section 165A, section 166, section 163, section 40(a)(ib), section 10(50) of the Income Tax Act 1961. It is reported as Section 165 of the Finance Act, 2016, reproduced in full, including sub-section (3), by the High Court of Judicature at Madras at paragraph 9 of its order dated 1 June 2026 in W.P. No. 6176 of 2022 (neutral citation 2026:MHC:1822); sub-section (3) re-read through an independent fragment query on the same document; the cross-reference to section 165 in section 165A(2)(ii) read on incometaxindia.gov.in/w/section-165a (Year: 2016). The one lakh threshold is per payer, per non-resident, per previous year, and is drawn by reference to the consideration received or receivable by the non-resident from that payer — not by reference to the payer's total advertising spend and not by reference to a single invoice. That is how most disputes about the six per cent levy start. The third exclusion, in section 165(2)(c), is the one most often overlooked: a payment for online advertisement that is not for the purposes of carrying out business or profession is outside the charge altogether, which is why the levy never reached individuals advertising privately. The permanent-establishment exclusion in section 165(2)(a) matters because it is the point at which the levy and the ordinary income-tax charge are kept apart: if the non-resident has an Indian permanent establishment with which the service is effectively connected, the receipt is taxed as business profits and the levy is not charged. And the cut-off in sub-section (3) is drafted by reference to when the consideration is received or receivable, not by reference to a financial year, so a payment falling due in March 2025 and paid in April 2025 needs the section read carefully rather than assumed. Nothing about the cut-off closes an earlier year: consideration received or receivable before 1 April 2025 is still chargeable and the section 40(a)(ib) disallowance for not paying it still bites. If it applies to you, the first step is this: Test the threshold correctly: aggregate what the SINGLE non-resident received or was receivable from your client for specified service in the previous year, and ask whether that figure exceeds one lakh rupees. Do not aggregate across different non-residents and do not test invoice by invoice.
Not a judgment. Section 165 of the Finance Act, 2016, as reproduced by the Madras High Court at paragraph 9 of its order of 1 June 2026, reads: '165. (1) On and from the date of commencement of this Chapter, there shall be charged an equalisation levy at the rate of six per cent of the amount of consideration for any specified service received or receivable by a person, being a non-resident from- (i) a person resident in India and carrying on business or profession; or (ii) a non-resident having a permanent establishment in India. (2) The equalisation levy under sub-section (1) shall not be charged, where- (a) the non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment, (b) the aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident from a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed one lakh rupees, or (c) where the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession. (3) The provisions of this section shall not apply to any consideration for any specified service received or receivable by a person on or after the 1st day of April, 2025.' The definition on which the charge turns is in section 164, and the operative words of it, as quoted in the same order at paragraph 10, are: '"specified service" means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf.' The matter was decided on 2016-06-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that the six per cent equalisation levy is imposed by section 165 of the Finance Act, 2016 and not by the Income-tax Act; that it is charged on consideration for specified service — online advertisement, provision for digital advertising space, or any other facility or service for the purpose of online advertisement — received or receivable by a non-resident from an Indian resident carrying on business or profession or from a non-resident with an Indian permanent establishment; that it is not charged where the service is effectively connected with the provider's own Indian permanent establishment, where the aggregate consideration from that payer in the previous year does not exceed one lakh rupees, or where the payment is not for the purposes of carrying on business or profession; and that by sub-section (3) it is not charged at all on consideration received or receivable on or after 1 April 2025, with everything before that date remaining chargeable.
Not a judgment; no judicial reasoning is stated for the section itself. On how the section is to be read, the Madras High Court drew two conclusions from its text at paragraph 10 of the Zoho order: that the levy 'is charged on the consideration received or receivable by a non-resident from either a person resident in India and carrying on business or profession or a non-resident having a permanent establishment in India', and that 'Such consideration should have been received for a specified service.' At paragraph 11 it added that where the service is provided by one non-resident to another non-resident, 'on a textual reading of Sections 165 and 164, equalization levy cannot be imposed on the petitioner unless reimbursement also falls within the scope of specified service.' In the words reproduced by the source cited on this page: "(3) The provisions of this section shall not apply to any consideration for any specified service received or receivable by a person on or after the 1st day of April, 2025."
It was decided by the CBDT Circulars & Instructions on 2016-06-01 and is reported as Section 165 of the Finance Act, 2016, reproduced in full, including sub-section (3), by the High Court of Judicature at Madras at paragraph 9 of its order dated 1 June 2026 in W.P. No. 6176 of 2022 (neutral citation 2026:MHC:1822); sub-section (3) re-read through an independent fragment query on the same document; the cross-reference to section 165 in section 165A(2)(ii) read on incometaxindia.gov.in/w/section-165a (Year: 2016). Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 165, section 165(1), section 165(2), section 165(3), section 164, section 165A, section 166, section 163, section 40(a)(ib), section 10(50), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not a judgment. The statutory position is that the six per cent equalisation levy is imposed by section 165 of the Finance Act, 2016 and not by the Income-tax Act; that it is charged on consideration for specified service — online advertisement, provision for digital advertising space, or any other facility or service for the purpose of online advertisement — received or receivable by a non-resident from an Indian resident carrying on business or profession or from a non-resident with an Indian permanent establishment; that it is not charged where the service is effectively connected with the provider's own Indian permanent establishment, where the aggregate consideration from that payer in the previous year does not exceed one lakh rupees, or where the payment is not for the purposes of carrying on business or profession; and that by sub-section (3) it is not charged at all on consideration received or receivable on or after 1 April 2025, with everything before that date remaining chargeable. It arises in How Tax Law Is Read and Assessment & Scrutiny matters, on section 165, section 165(1), section 165(2), section 165(3), section 164, section 165A, section 166, section 163, section 40(a)(ib), section 10(50) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check section 165(2)(c) before conceding: if the payment was not for the purposes of carrying out business or profession, there is no charge at all. If the foreign platform has an Indian permanent establishment and the advertising service is effectively connected with it, take section 165(2)(a) — the levy is not charged, and the receipt falls to be dealt with as business profits instead. Fix the date the consideration was received or receivable, not the date of the invoice or the financial year, and compare it against 1 April 2025. For any year before the cut-off where the levy was deductible and was not deducted or not paid by the due date under section 139(1), expect and address the section 40(a)(ib) disallowance in the income-tax assessment as a separate consequence.
Still good law. The text stated is the section in its final form, taken from a judgment delivered after the charge had ceased, so no later amendment can have escaped it up to 1 June 2026. The charge itself is spent for consideration received or receivable on or after 1 April 2025 but continues to govern every earlier period. What I did not do: I could not read section 164 on any government source and so cannot confirm that the definition of 'specified service' quoted here is complete or that no service was notified under the concluding words of that definition; a notification adding a service would widen the charge for earlier years and I did not search for one. I did not verify from a government source which Finance Act inserted sub-section (3). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Section 165 here is a section of the FINANCE ACT, 2016. The Income-tax Act, 1961 also has a section 165 ('Case where part of trust income is chargeable') and the departmental URL incometaxindia.gov.in/w/section-165, and its suffixes -1 to -8, all return that trust provision, not this one. I could not find a departmental page carrying Finance Act 2016 section 165. The text set out here is therefore taken from a judgment that reproduces the section — the Madras High Court's order in Zoho Corporation Private Limited v. Deputy Commissioner of Income Tax, pronounced 1 June 2026, at its paragraph 9 — which is a source dated AFTER the 1 April 2025 cut-off and therefore reproduces the section in its final form. The definition of 'specified service' is in section 164 of the Finance Act 2016, which I could not read on any government page; the Zoho order reproduces it at paragraph 10, but its reproduction is defective — it labels the definition as 'Explanation (i) to Section 164' and prints above it the opening words of a DIFFERENT Explanation, the one about 'online sale of goods' and 'online provision of services' that the Finance Act 2021 inserted into clause (cb) of section 164. I have taken from that passage only the words of the definition itself and have flagged the defect rather than reproduce the mislabelling. The marginal heading of section 165 was substituted with effect from 1 April 2020 by section 153(iii) of the Finance Act 2020, which as printed reads 'Charge of equilisation levy on specified services' — the misspelling is in the amending Act's own text as transcribed and is reproduced here without correction. `decided_on` is the commencement of Chapter VIII (1 June 2016), which is the date from which this charge ran, and NOT the date of the judgment from which the text was taken. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not a judgment. The statutory position is that the six per cent equalisation levy is imposed by section 165 of the Finance Act, 2016 and not by the Income-tax Act; that it is charged on consideration for specified service — online advertisement, provision for digital advertising space, or any other facility or service for the purpose of online advertisement — received or receivable by a non-resident from an Indian resident carrying on business or profession or from a non-resident with an Indian permanent establishment; that it is not charged where the service is effectively connected with the provider's own Indian permanent establishment, where the aggregate consideration from that payer in the previous year does not exceed one lakh rupees, or where the payment is not for the purposes of carrying on business or profession; and that by sub-section (3) it is not charged at all on consideration received or receivable on or after 1 April 2025, with everything before that date remaining chargeable.
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