What is the equalisation levy in plain terms?
It is an Indian charge on specified digital transactions. The important point is not the amount but where the charge sits: it was enacted outside the Indian income tax act, so it is not an income tax even though it is collected from cross-border payments that look like income. That placement is what surprises people. The arguments a cross-border adviser reaches for first, a treaty article or a credit at home for Indian tax paid, are arguments about income tax, and they have nothing to attach to here. Treat it as a separate cost to be identified in the contract, not as tax to be recovered later.
Can I claim a foreign tax credit for equalisation levy?
Not on the ordinary reasoning. A foreign tax credit is relief for foreign income tax, and the levy is not imposed under India's income tax act. So a credit claim that simply lists the amount alongside Indian withholding tax is asserting something the statute does not support, and it tends to fail at the worst moment, when the home-country return is already filed and the year is under review. The practical step is to separate the levy from Indian income tax in the accounting records at the point it is charged, so the two never arrive at the return as one figure.
Does the India tax treaty cover the equalisation levy?
A treaty allocates taxing rights over defined taxes, and it says which taxes of each country it applies to. A charge created outside the income tax act is generally not among them, which is why treaty correspondence about the levy rarely goes anywhere. Reading the treaty's own scope article first saves the argument. If the charge is not a covered tax, then permanent establishment reasoning, the business profits article and the credit article all describe something else, and a response resting on them invites a reply that says so.
Why was equalisation levy deducted from my invoice to India?
Because India collects before it computes. The charge is accounted for when the payment is made, ahead of any question about whether the recipient is entitled to relief. That order of events is the whole difficulty: by the time the recipient looks at the position, the money has already gone. Whether the deduction was correct is a question about the contract and the nature of the supply, and whether anything can be recovered is a separate question again. Establish which of the two you are actually asking before writing to the payer.
Is equalisation levy an income tax or something else?
Something else, and that is the one thing about it worth committing to memory. It is a charge on specified digital transactions, sitting outside the income tax act. Everything awkward about it follows from that: no treaty article obviously covers it, the usual credit mechanism does not reach it, and it is not resolved by proving that the recipient has no taxable presence in India. In a group's accounts it belongs with irrecoverable transaction costs rather than with tax provisions, and describing it that way from the start prevents a credit being claimed for it by accident.
Do I have to file in India because of equalisation levy?
The charge is accounted for by the party the Indian rules make responsible, which is commonly the payer rather than the foreign recipient. Being charged the levy does not by itself create an Indian income tax return for the recipient, and equally it does not remove one that exists for another reason. Those are two independent questions and the order matters: what India requires of the payer, and separately, whether the recipient has an Indian filing obligation of its own. Conflating them is how a foreign supplier ends up either over-filing or ignoring a real obligation.
Do I have to file in both countries?
Frequently yes, and the two filings do different jobs. The country where the income arises taxes it at source; the country where you are resident taxes your worldwide income and then gives credit for the tax already paid. Filing only one side is what leaves relief unclaimed — the credit has to be asked for on a return. We prepare both sides so the numbers agree. See dual filing.
Do I get credit for all of the foreign tax I paid?
Only up to your own country's tax on that same income, and only for tax you were legally obliged to pay. Two consequences follow. Living somewhere that taxes you more heavily than your residence country does leaves an excess that becomes a carryover rather than a refund. And withholding suffered above the treaty rate is not creditable — the route back to that money is a refund claim in the country that took it. See claiming the credit.
