With Jammu And Kashmir Losing Special Status, Is Equalisation Tax Leviable?

This week the Indian government created a major political upheaval by revoking Article 370 which gave Jammu and Kashmir special status as a state. One of the clauses of this article prohibited companies operating in Jammu and Kashmir from paying equalisation tax.

Equalisation levy was introduced in Finance Bill 2016 is a direct tax, which is withheld at the time of payment by the service recipient. The tax is charged on the business to business service where payment is made to a non-resident service provider, which is less than INR 1 Lakh in a year.

Reports have now surfaced that with the special status removed from Jammu and Kashmir, digital commerce operators advertising on global social media may now reportedly have to pay the tax at 6%. The companies such as Google, Facebook, Amazon and Flipkart are now reportedly trying to understand the tax implications of this announcement.

The report said that the companies are assessing if they need to start paying additional taxes, and also if they have to change its accounting strategies. The companies are hoping for clarity in few weeks after meeting with the tax department in Jammu and Kashmir.

However, experts have reportedly said that there may be no need for concerns in terms of income tax, however, equalisation levy may be charged after specific amendments. They reportedly said that since the companies already pay income tax, there would be no changes for them with revocation of Article 370.

At the time when global companies have been increasingly betting their business growth on India, identifying the country as a crucial market, another source of business with the accessibility to Jammu and Kashmir may work out well for them.

Anyway, the government has been calling for private sector growth in the two new union territories— Jammu and Kashmir; and Ladakh. Recently, reports surfaced that the government is looking to host an investor’s summit in Jammu and Kashmir in October.

The plan for the summit is to host major industrial groups and unveil concrete ideas for investment in sectors including hospitality, pharmaceuticals, agro processing and healthcare. The plan is to have Prime Minister Narendra Modi inaugurate the showcase summit.

Jammu and Kashmir has been developing its startup ecosystem over the last few years, and the planned investor summit and equalisation levy may have different impacts on the growth plans.