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Advertisement Income generated by Targeting Indian Customers shall be Taxable in India from Assessment Year 2021-22

Digital transformation incentivize innovation, generates efficiencies, and improves services. However, at the same time the breadth and speed of this change introduces many challenges in rationalizing the tax policies. In many of the cases, physical presence of the person does not exist in the country from which the income is being earned. The complexity of the transaction makes it mandatory to scan each and every type of transaction before applying taxes on same. Furthermore, being the cross border transactions, one has to keep an eye on relevant DTAA in addition to the Income-tax Act. Taxability of income earned by a non-resident in respect to income earned from digital advertisement targeting Indian customers was not yet within the ambit of Income-tax despite the fact that the income is being generated by targeting Indian customers.

The Finance Minister, Smt. Nirmala Sitharaman, in her budget speech mentioned that Data is the new Oil’. This oil is very much marketable and may fill the pockets of the person selling it. Almost all the sites like Google, Facebook, Yahoo, etc. have plenty of information collected from Indian users which they can monetize anytime. The tax incidence of that income is not yet defined in the Income-tax Law.

The Finance Bill, 2020 proposes to cover the above gap keeping in view of international practices.

Explanation 1 to Section 9(1)(i) of the Act provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India.

It has been proposed that the term ‘Income attributable to the operations carried out in India’ in said Explanation 1 shall include income from:

    1. Advertisement which targets a customer who resides in India or a customer who accesses the advertisement through IP address located in India;

    2. Sale of data collected from a person who resides in India or from a person who uses IP address located in India; and

    3. Sale of goods or services using data collected from a person who resides in India or from a person who uses IP address located in India.

With effect from Assessment Year 2022-23, the above provision is also applicable to the income arising from transactions attributable to Significant Economic Presence.

A distinction between taxability under this provision and applicability of equalisation levy has been given in the below table:

S. No.

Basis of Comparison

Section 9

Equalization Levy


Supplier of Service




Recipient of Service

Any person

Indian resident carrying on business or non-resident having a PE in India


Nature of Service

Providing advertisement targeting customers residing in India or a customer who access the advertisement through Indian IP Address

Online advertisement services provided to Indian Resident carrying on Business or to a non-resident having PE in India



Income taxable in the hands of supplier of service

Person paying to non- resident should deduct and pay equalization levy


Taxable Amount

Income attributable to the operations carried out in India

Amount paid or payable


Responsibility to pay Tax

Recipient of income

Person who pays shall deposit the equalisation levy

Provision to Tax Income Arising due to Significant Economic Presence in India is deferred
[Applicable from Assessment Year 2022-23]
Tax Amendments in Finance Bill 2020 Consequential Amendments in Finance Bill 2020 due to Substitution of SEBI (FPI) Regulations
[Effective from Assessment Year 2021-22]
Income Tax Slab for Financial Year 2020-21 (AY : 2021-22)

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