In today’s digital economy, business is no longer limited by borders. Companies can reach Indian users without setting foot in India. But this created a new challenge — how do you tax foreign digital companies earning income from Indian customers?
To solve this, India introduced the Equalisation Levy in 2016, followed by a broader Equalisation Levy on e-commerce supply or services in 2020. But to ensure that such income isn’t taxed twice, the government introduced Section 10(50) of the Income Tax Act, which provides an exemption for income already covered under the levy.
Let’s explore how this exemption works, who benefits from it, and why it’s a key part of India’s modern tax regime.
What Is Section 10(50) of the Income Tax Act?
Section 10(50) was introduced to remove the possibility of double taxation on digital transactions. In simple terms, it provides that any income arising to a non-resident from supplying specified services or from e-commerce activities that are subject to the equalisation levy will be exempt from income tax in India.
In other words, if a non-resident has already paid the equalisation levy on a transaction, that income won’t be taxed again under normal income tax provisions.
Thus, Section 10(50) – Exemption from Income Tax Act is a fairness mechanism that aligns India’s taxation with global digital trade principles.
Why Was This Section Introduced?
Before 2016, many foreign digital companies earned huge revenues from Indian users through online advertising, cloud services, and e-commerce without having a physical presence here. This meant that they weren’t liable to pay income tax in India under traditional rules, which were based on physical presence or a permanent establishment. To plug this gap, India introduced the Equalisation Levy through the Finance Act, 2016. Initially, it applied to online advertising services at a rate of 6%. In 2020, it was expanded to cover e-commerce operators at 2%.
However, once these companies started paying the equalisation levy, there was a risk that the same income would also be taxed under the Income Tax Act as business income or royalty. That’s why an exemption under Section 10(50) of the Act was added — to ensure fairness and avoid taxing the same income twice.
Key Objective – Avoiding Double Taxation
The central idea behind this provision is simple: income which is subject to equalisation levy is exempt from income tax. This ensures that foreign companies providing digital services are taxed only once — through the equalisation levy — rather than facing both income tax and the levy on the same revenue.
It aligns with international tax principles & prevents overlapping taxation, which could discourage global companies from doing business in India.
Also Read: Leave Travel Allowance (LTA) Exemption
Income Covered Under Section 10(50)
The exemption applies to:
- Income arising to a non-resident (foreign company or individual)
- From providing specified services (like online advertising, digital marketing, etc.)
- Or from e-commerce supply or services, such as:
- Sale of goods to Indian residents or users
- Provision of services to Indian customers
- Facilitating the sale or purchase of goods or services through digital platforms
In short, if the income falls under the equalisation levy framework, it becomes exempt under Section 10(50).
Definition of “Specified Services”
As per the Equalisation Levy rules, specified services include:
- Online advertisement"
- Provision of digital advertising space
- Any service related to online advertising
For example, if a U.S.-based advertising platform charges an Indian company for displaying ads to Indian users, the income is subject to equalisation levy — and thus exempt under Section 10(50).
Understanding the E-commerce Expansion (2020 Amendment)
The Finance Act 2020 widened the scope of equalisation levy by introducing a 2% levy on e-commerce supply or services made by a non-resident e-commerce operator.
This applied to:
- Sale of goods to Indian residents or users, or
- Provision of services via a digital platform.
Consequently, the exemption under Section 10(50) was also expanded to cover this new levy from April 1, 2021.
Practical Example
Let’s take an example.
A global e-commerce platform, say “ShopWorld,” based outside India, sells products online to Indian customers. The company doesn’t have an office or branch in India.
- Total sales revenue from Indian users: ₹50 crore
- Equalisation Levy @ 2%: ₹1 crore
Once the company pays this ₹1 crore levy, the same ₹50 crore income is exempt from income tax in India under Section 10(50).
This way, the income is taxed once through the levy, & not again as business or royalty income under the regular tax regime.
Period of Exemption
The exemption under Section 10(50) applies to income:
- From specified services chargeable to equalisation levy (from 2016), and
- From e-commerce supply or services (from 2021).
However, if any income falls outside the scope of the equalisation levy, it may still be taxable under other provisions of the Income Tax Act.
Also Read: Capital Gain Exemption on Sale of Agricultural Land
Conditions and Limitations
While the provision seems simple, it has certain conditions:
- The income must actually be chargeable to equalisation levy under Chapter VIII of the Finance Act.
- The payer (Indian resident or user) must be liable to deduct or pay the levy.
- If any income escapes the levy due to non-applicability or exemption under the Finance Act, Section 10(50) cannot be used to claim relief.
In short, the exemption is available only if the equalisation levy is paid.
Impact on Non-Resident Companies
This provision has major implications for non-resident digital companies, including:
- Online marketplaces
- Streaming & entertainment services
- Advertising platforms
- Software-as-a-Service (SaaS) providers
- Social media companies earning from ad revenues
For these businesses, Section 10(50) provides much-needed clarity — they know exactly when their income is exempt & how to structure their Indian operations accordingly.
How Section 10(50) Avoids Double Taxation
Let’s understand this with an example:
Before this section existed, a foreign company earning ad revenue from India might face two taxes —
- Equalisation Levy (on the transaction), and
- Income Tax (as business or royalty income).
That would have meant double taxation on the same income.
But now, with Section 10(50), once the levy is applied, the income is fully exempt from income tax. This ensures fairness & avoids overlap between the two tax systems.
Thus, the section is intended to avoid double taxation of income in the digital economy.
Interplay with Other Provisions
Section 10(50) coexists with other exemptions under Section 10, such as those for:
Just as the Income Tax Act allows deductions for scientific research to promote innovation, Section 10(50) supports the growth of digital trade by ensuring tax certainty and fairness. Both aim to encourage compliance & economic growth in their respective areas.
Clarifications by CBDT
The Central Board of Direct Taxes (CBDT) issued multiple clarifications to ensure proper implementation of the Equalisation Levy and its corresponding exemption.
It clarified that:
- The exemption applies only to income that is actually chargeable to levy, not to all digital revenues."
- Any income before April 1, 2016 (for specified services) or before April 1, 2021 (for e-commerce), is not exempt.
This maintains balance — preventing both double taxation & tax evasion.
Also Read: Capital Gain Exemption on Compulsory Acquisition of Urban Agricultural Land
Challenges and Global Debate
While Section 10(50) brought clarity domestically, it also sparked international debate. Some foreign governments & corporations argued that India’s equalisation levy acted like a unilateral digital tax. However, India defended it as a fair measure for a developing economy, ensuring that profits earned from Indian consumers contribute to Indian revenues.
The exemption under Section 10(50) shows India’s intent — not to over-tax, but to create a level playing field.
Broader Significance
With more global economies moving toward digital services taxation, India’s approach through the equalisation levy & Section 10(50) is now seen as a model.
It achieves three major goals:
- Ensures fair taxation of digital players without physical presence.
- Avoids double taxation on the same income.
- Supports international cooperation while protecting domestic interests.
Practical Tip for Businesses
If you are an Indian company paying for online advertising or cloud services from a foreign vendor, ensure you deduct and pay the Equalisation Levy correctly. If you’re a non-resident earning from India, maintain proper documentation showing that the levy was paid on your behalf. That’s how you can legitimately claim the exemption under Section 10(50).
Proper compliance helps avoid disputes & reassessment notices from tax authorities.
Conclusion
Section 10(50) of the Income Tax Act is a modern provision crafted for the digital economy. It recognises the reality that digital business models don’t need physical offices, and therefore, new taxation mechanisms like the equalisation levy are essential. By ensuring that income arising to a non-resident from supplying specified services is not taxed twice, the section reinforces India’s commitment to fair & transparent tax laws. It clearly states that income which is subject to equalisation levy is exempt from income tax, keeping India’s digital tax framework globally competitive and legally sound.
If you’re a digital business earning from India or an Indian company paying for foreign online services, expert tax planning can save you from double taxation & penalties.
Visit CallMyCA.com — our tax experts simplify compliance under Section 10(50) and help you file with confidence.
