INTEGRATED MAINS AND PRELIMS MENTORSHIP (IMPM) KEY (03/04/2025)

INTEGRATED MAINS AND PRELIMS MENTORSHIP (IMPM) 2025 Daily KEY

 
 
 
 
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National Clean air Programme (NCAP)  and Chatrapati Shivaji Maharaj, Impact of Earthquakes and its significance for the UPSC Exam? Why are topics like equilisation levy (EL), Base Erosion and Profit Shifting (BEPS) important for both preliminary and main exams? Discover more insights in the UPSC Exam Notes for April 03, 2025

 

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Critical Topics and Their Significance for the UPSC CSE Examination on April 03, 2025

Daily Insights and Initiatives for UPSC Exam Notes: Comprehensive explanations and high-quality material provided regularly for students

 

Why India needs to clean its air?

For Preliminary Examination:  Current events of national and international Significance

For Mains Examination: GS III - Environment & Ecology

Context:

India’s clean air future will be shaped not by dashboards but by people, partnerships, and purpose. Lasting solutions depend on those working on the ground: municipal officers, planners, engineers, and community leaders

 

Read about:

National Clean air Programme (NCAP)

Air Quality Index (AQI)

 

Key takeaways:

 

India’s Air Pollution Crisis: Beyond Seasonal Concerns

India’s struggle with air pollution is far more than a seasonal nuisance—it is an ongoing public health emergency that suffocates millions each winter and lingers throughout the year. Hospitals witness a surge in respiratory illnesses, schools are forced to close, thick smog shrouds cities, and major Indian metropolitan areas consistently rank among the most polluted globally.

Evaluating India’s Response

Considering the severity of this crisis, it is crucial to assess the steps India is taking to improve air quality. Measures such as the National Clean Air Programme (NCAP), Bharat VI emission norms, the Pradhan Mantri Ujjwala Yojana (PMUY), and efforts to phase out coal-dependent industries in the National Capital Region (NCR) mark progress. However, the overall response remains fragmented and slow-moving. Without better coordination and swift execution, meaningful transformation may remain elusive.

Recognizing Ground Realities

  • A major challenge lies in how India perceives air pollution—often treated as a technical issue when, in reality, it is a deeply rooted structural problem shaped by governance, population density, socio-economic inequalities, behavioral habits, and entrenched economic models.
  • While scientists diagnose air quality much like doctors identify symptoms, the real solutions lie in the hands of municipal officials, urban planners, engineers, and community leaders.
  • These stakeholders operate under financial constraints, outdated infrastructure, and competing priorities. Strengthening their capabilities and aligning their responsibilities with air quality targets is essential for long-term progress.
  • This complexity is particularly relevant in India’s ambitious goal to cut PM2.5 levels by 40% by 2026, compared to 2017 levels. While necessary, this target may not be achievable without acknowledging on-ground realities.
  • For instance, tackling vehicular pollution requires more than just blaming vehicles; it involves assessing vehicle types, fuel usage, age, travel distances, and congestion levels.
  • Without such granular insights, local governments may struggle to devise practical, actionable policies. Bridging the gap between national targets and real-world emission sources is key to achieving measurable progress.

Strengthening Proactive Programs

  • China’s air quality improvements often serve as a benchmark, but they came at a significant financial cost—₹22 lakh crore over five years for urban centers. In contrast, India’s NCAP budget is a fraction of that.
  • However, when factoring in allied initiatives such as PMUY (₹18,128 crore), the Faster Adoption and Manufacturing of Electric Vehicles (FAME II) scheme (₹10,795 crore), Swachh Bharat Mission-Urban (₹1.4 lakh crore), and NCAP (₹11,542 crore), a broader ecosystem of air quality financing emerges.
  • These initiatives collectively target key pollution sources and should be acknowledged as part of India's clean air strategy.
  • Despite this, NCAP faces challenges related to fund allocation and performance assessment. Its reliance on ambient air quality data—often influenced by weather and geography—makes it difficult to track short-term improvements.
  • For example, interventions like PMUY and waste-burning controls have reduced emissions in certain regions, but these successes may not immediately reflect in air quality indices, potentially creating a misleading perception of stagnation.
  • Adopting activity-based metrics—such as the number of polluting stoves replaced or diesel buses retired—could offer a more accurate measure of impact and enhance accountability.

Data-Driven Governance

  • Merely adjusting metrics is insufficient. Local governments require access to high-resolution, open-source data on pollution-generating activities—where waste burning occurs, which households use solid fuels, where construction is active, and which roads face severe congestion.
  • Without this information, air pollution remains an abstract issue rather than an integral part of urban governance. This data gap directly affects the utilization of NCAP funds; between 2019 and 2023, only 60% of allocated funds were used—not due to a lack of intent, but due to institutional misalignment. Air quality management must be integrated into core municipal functions rather than treated as a separate concern.
  • For effective implementation, a phased approach is necessary. In Phase I, local emission profiles should be developed to identify major pollution sources. Phase II should link funding directly to targeted interventions based on this data.
  • Phase III should track emission reductions—not just pollution concentrations—to measure real progress. This transition from passive monitoring to active management is essential for meaningful on-ground change.

Avoiding Superficial Solutions

  • As India embraces digital tools for air quality management, it must resist an over-reliance on high-tech, urban-centric solutions that overlook fundamental pollution sources.
  • Technologies like smog towers, AI-driven pollution tracking, and real-time apportionment may appear cutting-edge but offer limited value if basic problems such as biomass burning, outdated industrial processes, and polluting vehicles remain unaddressed.
  • Cities like London and Los Angeles successfully deployed advanced technologies only after implementing decades of structural reforms. India must prioritize foundational solutions before focusing on high-tech interventions.
  • This misalignment also raises concerns about elite capture, where urban centers receive state-of-the-art tools while rural and informal sectors—major contributors to emissions—remain neglected.
  • Worse, such tools may divert attention from structural reforms, shifting the focus from real impact to superficial optics. More data does not automatically translate into effective action unless local agencies have the authority and resources to act on it.
  • To bridge this gap, India must differentiate between research-oriented funding and solution-driven implementation. While long-term innovation is important, policymakers need short-term, scalable interventions that can be rapidly deployed. Establishing distinct funding streams for research and immediate action can prevent excessive emphasis on theoretical studies at the expense of tangible progress.

Learning from Global Practices

  • Other countries offer valuable lessons without necessitating direct imitation. China achieved success by shutting down coal plants, Brazil implemented community-led waste management systems, California reinvested pollution revenue into underserved communities, and London banned coal usage before deploying advanced monitoring systems.
  • Each approach was tailored to the country's specific context. Similarly, India must develop air quality programs that align with its federal structure, are driven by subsidies, and cater to its largely informal economy.
  • Ultimately, India’s journey toward cleaner air will be defined not by digital dashboards but by people, policies, and partnerships. Prioritizing systemic reforms over symbolic gestures is crucial.
  • Clean air must be a right for all, not a privilege for a few. Achieving this will require not just promises, but proactive coordination, bold decision-making, and unwavering commitment

 

Follow Up Question

 1.In the cities of our country, which among the following atmospheric gases are normally considered in calculating the value of Air Quality Index? (UPSC 2016)

  1. Carbon dioxide
  2. Carbon monoxide
  3. Nitrogen dioxide
  4. Sulfur dioxide
  5. Methane

Select the correct answer using the code given below:

A. 1, 2 and 3 only     

B. 2, 3 and 4 only   

C. 1, 4 and 5 only     

D. 1, 2, 3, 4 and 5

Answer (B)
 

The Air Quality Index (AQI) in India considers the following pollutants:

  • Particulate Matter (PM10 & PM2.5)

  • Nitrogen Dioxide (NOâ‚‚)

  • Sulfur Dioxide (SOâ‚‚)

  • Carbon Monoxide (CO)

  • Ozone (O₃)

  • Ammonia (NH₃)

  • Lead (Pb)

Why not Carbon Dioxide (COâ‚‚) and Methane (CHâ‚„)?

  • COâ‚‚ is a greenhouse gas but is not a direct air pollutant affecting short-term human health at typical atmospheric concentrations, so it is not included in AQI calculations.

  • Methane (CHâ‚„) is also a greenhouse gas but does not directly impact urban air quality in the short term

 
 
 
For Preliminary Examination:  Current events of national and international Significance
 
For Mains Examination: GS I -Modern Indian History
 
Context:
 
On April 3, the death anniversary of Chhatrapati Shivaji Maharaj who passed away at 50 in 1680, a lookback through books, charters and memoirs to understand what made the king a transformative force in a feudal age
 
Read about:
 
Chatrapati Shivaji Maharaj
 
Mughal Empire
 
Key takeaways:
 
 
  • Chhatrapati Shivaji Maharaj is renowned for leading the most significant resistance against Aurangzeb’s territorial ambitions during the Mughal era in India. Beginning his journey as a Maratha warrior, Shivaji rose through sheer determination and became a self-proclaimed ruler.
  • With a hands-on leadership approach, he frequently led his troops in perilous missions, often putting his own life at stake. His courage and commitment earned him the unwavering loyalty of his soldiers, many of whom willingly laid down their lives for his vision—paving the way for the establishment of Hindavi Svarājya, a self-sufficient Indian state.
  • Starting in the 1640s with a modest force, Shivaji expanded his army to tens of thousands by the mid-1660s, gaining the confidence of numerous warriors. A strategist in guerrilla warfare—known as ganimi kawa in Marathi—his swift, agile methods repeatedly outmaneuvered the numerically superior yet sluggish Mughal forces. He employed rapid cavalry strikes, disrupted enemy supply chains, and used hit-and-run tactics in challenging terrains, inflicting significant damage on his adversaries.
  • French administrator François Martin, the first Governor-General of Puducherry, highlighted the stark differences between the Mughal and Maratha military structures in his Mémoires. He noted that the Maratha army was mobile, efficient, and accustomed to a disciplined yet austere lifestyle. Martin also described Shivaji as a ruler who eschewed grandiosity, often sitting among his soldiers rather than indulging in royal extravagance.
  • Another French traveler, Jean de Thévenot, characterized Shivaji as being of short stature, with a sharp gaze indicative of intelligence. He documented that Shivaji followed a frugal lifestyle, eating only once a day and sharing meals with his troops. Similarly, Abbé Barthélemy Carré likened Shivaji’s generosity and strategic acumen to that of Julius Caesar, emphasizing how his kindness won over even those he had previously defeated in battle.

A Ruler Beyond Caste Boundaries

  • In contemporary times, debates around Shivaji’s caste identity have often emerged, overshadowing his true legacy. His army and administration comprised individuals from diverse backgrounds—so-called lower castes, impoverished Brahmins, peasants, nomads, and small landlords.
  • Some notable figures in his military included Hambirrao Mohite (a Maratha), Tanhaji Malusare (a Koli), Baji Prabhu Deshpande (from a Chandraseniya Kayastha Prabhu lineage), and Ragho Atre (a Brahmin).
  • Additionally, Shivaji’s forces enlisted members of nomadic communities, such as the Narikuravars, and the Koli caste, known for their maritime expertise. His naval forces also had significant representation from the Kolis, who transitioned from fishermen to skilled seafarers. Notably, Siddi Hilal, a Muslim of African descent, was among his distinguished commanders.
  • Shivaji’s governance was remarkably meritocratic, ensuring that at the time of his death, all 240 forts under his rule were overseen by capable administrators rather than hereditary nobility.
  • He also supported religious inclusivity, allowing those who had converted to other faiths to return to Hinduism—a policy implemented long before similar reforms were championed by the Arya Samaj in the 19th century.
  • Figures such as Netaji Palekar and Bajaji Nimbalkar were notable beneficiaries of this policy. His defiance of orthodox Brahmins, who initially opposed his coronation due to his uncertain caste origins, further highlights his progressive outlook.
  • Cosme de Guarda, in his 1695 account Life of the Celebrated Sevagy, recorded Shivaji’s progressive stance on sati, noting that he opposed forcing his wives to commit self-immolation upon his death. He stated that while they were free to choose, coercion was strictly forbidden—demonstrating his humane and reformist approach.
  • Shivaji also sought to replace Persian legal terminology with indigenous Indian languages. In 1677, he commissioned the RājavyavahārakoÅ›a, a Sanskrit lexicon that translated over 1,500 Persian administrative terms. This effort reinforced Marathi, written in both Devanagari and Modi scripts, as the primary language of administration and literature. By doing so, he facilitated greater accessibility to governance, allowing ordinary citizens to engage with state affairs without relying on Persian.

A Champion of Social Justice and Economic Reform

  • During Aurangzeb’s reign, slavery remained a prevalent institution, with the Al-Fatawa al-Alamkiriyyah (1672) legitimizing the ownership and trade of enslaved individuals while also rendering their testimonies inadmissible in court. Shivaji took a firm stand against this practice.
  • In 1677, he issued a charter banning the slave trade under his jurisdiction, particularly in Dutch-controlled trading posts like Porto Novo (modern-day Parangipettai) and Tevenapatam (in present-day Tamil Nadu).
  • His decree warned that any attempt to engage in slavery would be met with active resistance, emphasizing that such actions would not be tolerated.
  • Shivaji’s economic policies were equally revolutionary. He abolished the vatandari system—a feudal practice that allowed landlords to exercise control over peasant labor—and introduced the Ryotwari system instead. This reform empowered cultivators by granting them greater autonomy over their land and produce.
  • The Sabhasad Bakhar, a biography of Shivaji written in 1697, underscores his commitment to peasant welfare, stating that his policies freed farmers from the oppressive grip of landlords.
  • The Adnyapatra, a royal directive composed by his finance minister Ramchandra Pant Amatya, further condemned the feudal elites, describing them as a persistent threat to the state due to their insatiable greed for power and land.
  • In essence, Shivaji’s rule was characterized by progressive governance, military ingenuity, and an unwavering commitment to justice. He sought to dismantle oppressive structures, championed meritocracy over hereditary privilege, and ensured that all under his rule, regardless of caste or creed, found dignity and opportunity in his Svarājya
 
Follow Up Question
 
1.Chhatrapati Shivaji Maharaj's rule was marked by progressive governance, military innovation, and social inclusivity, challenging the feudal and orthodox structures of his time." Discuss how Shivaji’s policies in administration, military strategy, and social reform contributed to the foundation of Hindavi Swarajya. (250 words)
 
 
 
For Preliminary Examination:  Current events of national and international Significance
 
For Mains Examination: GS I - Geography
 
Context:
 
The powerful earthquake in Myanmar on March 28 had its source in central Myanmar, about 20 km from Mandalay, the country’s second-largest city. Mandalay, located on the east bank of the Irrawaddy river, is close to one of the most seismically active faults in the region, called the Sagaing fault, named after a town not far from Mandalay on the river’s opposite side. The earthquake of magnitude 7.7 struck around 12:50 pm local time, followed by several strong aftershocks, including one of magnitude 6.4, which occurred 11 minutes after the major event
 
Read about:
 
P Waves
 
S Waves
 
Key takeaways:
 
 

Impact of the Earthquakes

  • The earthquakes caused widespread destruction, affecting the entire region, resulting in thousands of casualties and extensive damage to homes. The impact zone extended as far as Bangkok, Thailand’s capital, nearly 1,000 km from the quake’s epicenter.
  • In Bangkok, the destruction was minimal, except for the total collapse of a 33-story high-rise under construction and an overflow of water from a rooftop swimming pool of another building.
  • Despite their limited impact, these incidents were widely reported due to the city's prominence in global tourism. The water overflow resulted from seismic seiches—water oscillations triggered by seismic waves passing through the area. Even at a significant distance from the epicenter, slower, long-period seismic waves can intensify movements in taller structures, as observed in this case.
  • According to the U.S. Geological Survey's damage assessment models, the total death toll in the affected region was estimated to exceed 10,000. Mandalay, with a population of over 1.5 million, bore the brunt of the destruction.
  • Many structures, including religious sites, bridges, and mosques, were either severely damaged or completely destroyed.
  • Analysis of the destruction indicates that the southern part of the Sagaing fault experienced the most damage due to its thick deposits of alluvium from the Irrawaddy River, which amplified the seismic energy. In contrast, China’s Yunnan Province, located north of the fault, remained largely unaffected by the quake.
  • The earthquake originated at a depth of just 10 km, significantly contributing to the widespread damage and the large area where tremors were felt. Eastern parts of India remained largely unscathed because the seismic energy dispersed predominantly in a north-south direction along the fault line.

Frequency of Earthquakes in South Asia

  • South Asia, including Myanmar, is particularly susceptible to earthquakes due to its proximity to significant tectonic features such as the Himalayas, the Shillong Plateau, the Southern Indo-Burman Range, and the Andaman-Nicobar subduction zone.
  • The collision of the Indian and Eurasian plates, which began around 40 million years ago, has led to an active plate boundary in Southeast Asia.
  • This boundary has generated some of the most powerful earthquakes in history, including the 9.2-magnitude earthquake in 2004, which triggered a devastating transcontinental tsunami.
  • The accumulation of tectonic stress along these plate boundaries results in frequent seismic events. A major earthquake of magnitude 8.5 struck in 1792 along the Arakan coast of Myanmar, triggering a tsunami in the northern Bay of Bengal and causing extensive soil liquefaction in the Chittagong region of Bangladesh.
  • This thrust fault extends further north into the Chittagong-Tripura fold belt, where moderate seismic activity continues to occur. However, the potential for another major earthquake in this region remains uncertain.
  • Southeast Asia is home to a variety of geological structures capable of producing earthquakes with different faulting mechanisms, at depths ranging from 5 km to as deep as 400 km. Deeper earthquakes tend to occur in the southern regions near Indonesia or in the Indo-Burmese regions near the subduction front between the Indian and Eurasian plates.
  • The 2025 Mandalay earthquake, however, originated within the continental part of the mountain range. In the process of mountain formation, sediments from the subducting Indian plate get pushed onto the overriding Asian plate, forming the tectonic setting from which such earthquakes emerge.

Geodynamics of the Sagaing Fault

  • The eastern margin of the Indian Ocean is shaped by the intricate interactions of multiple tectonic plates. The Indian and Eurasian plates are converging in an oblique manner rather than directly colliding.
  • This oblique convergence results in a partitioning of strain—some deformation occurs perpendicular to the plate boundary, while the rest occurs parallel to it. The Sagaing fault, running north-south, forms a major tectonic boundary between the Central Myanmar Lowlands and the Indo-Burman Range.
  • Between the Indian plate and the Sagaing fault lies an elongated micro-tectonic block known as the Burma plate or Burma sliver. This block has emerged due to strain partitioning at the subduction front.
  • Studies indicate that the Sagaing fault accommodates a significant portion of the strike-slip component of the oblique convergence, moving at a rate of 15-25 mm per year, with a cumulative displacement of 100-700 km. The fault accounts for approximately 50-55% of the overall plate motion in the region.
  • Unlike thrust faults, where vertical movements of fault blocks are common, the Sagaing fault primarily exhibits horizontal movements, with tectonic blocks sliding past each other. This makes it similar to the San Andreas Fault in the western United States. While thrust faults can generate both shallow and deep earthquakes, strike-slip faults, such as the Sagaing fault, typically produce shallower earthquakes at depths of 10-15 km.
  • As a ridge-trench transform fault, the Sagaing fault spans approximately 1,400 km from the Andaman Sea’s spreading center in the south to the eastern Himalayan bend in the north.
  • The fault has a history of strong earthquakes, with six major quakes of magnitude 7.0 or higher occurring between 1930 and 1956 along this structure. Historical seismic activity suggests that nearly half of the fault has ruptured in the past few decades.
  • The 2025 earthquake, therefore, was not an isolated event but rather part of an ongoing sequence of quakes that release built-up stress from active plate movements.

Implications of the Mandalay Earthquake

  • Records indicate that in 1839, an earthquake known as the Ava earthquake struck central Myanmar, killing over 500 people. This event is believed to have originated along a segment of the Sagaing fault, with an estimated magnitude of 7.8.
  • Another notable earthquake in 1927 was reported to have been strongly felt north of Yangon, Myanmar’s largest city, which currently has a population of over four million. Additionally, an earthquake of magnitude 7.7 occurred in 1946 on the Sagaing fault north of Mandalay, similar in magnitude to the 2025 earthquake.
  • The historic city of Bagan, known for its dense collection of religious monuments, has also been impacted by multiple earthquakes over the centuries, with the most recent occurring in 2016.
  • Scientific research helps us understand earthquake processes, identify potential locations for future earthquakes, and estimate their possible magnitudes. However, the Sagaing fault is more than just an area of scientific interest—it directly affects millions of people living along its length.
  • The recent earthquake has compounded Myanmar’s struggles, with rising casualties and widespread destruction of infrastructure, further exacerbated by the ongoing civil conflict in the region
 
Follow Up Question
 

1.Consider the following: (2013)

  1. Electromagnetic radiation 
  2. Geothermal energy 
  3. Gravitational force 
  4. Plate movements 
  5. Rotation of the earth 
  6. Revolution of the earth 

Which of the above are responsible for bringing dynamic changes on the surface of the earth? 

(a) 1, 2, 3 and 4 only 
(b) 1, 3, 5 and 6 only 
(c) 2, 4, 5 and 6 only 
(d) 1, 2, 3, 4, 5 and 6 

Answer (d)
 

All the given factors contribute to dynamic changes on the Earth's surface:

  • Electromagnetic Radiation – Solar radiation drives weathering, erosion, and climate changes, affecting the Earth's surface over time.

  • Geothermal Energy – The heat from the Earth's interior causes volcanic activity, earthquakes, and plate tectonics.

  • Gravitational Force – Influences tides, erosion, and landslides, shaping the Earth's landscape.

  • Plate Movements – Cause earthquakes, mountain formation, and continental drift.

  • Rotation of the Earth – Affects wind patterns, ocean currents, and climate variations, leading to weathering and erosion.

  • Revolution of the Earth – Governs seasonal changes, impacting weathering, vegetation, and erosion patterns

 

Equisation Levy

For Preliminary Examination:  Current events of national and international Significance

For Mains Examination: GS III - Economy

Context:

As part of amendments to the Financial Bill, 2025, the central government has proposed to remove the 6 per cent equilisation levy (EL) charges imposed on digital ads from April 1, 2025. The move came in response to President Donald Trump’s announcement of imposing a reciprocal tax on India.  Experts believe that it remains to be seen whether this step, coupled with ongoing diplomatic measures, would lead to any softening of the US stance.

 

Read about:

Google Tax

Base Erosion and Profit Shifting (BEPS)

 

Key takeaways:

 

The Equalisation Levy is a tax introduced by the Indian government to address the taxation challenges posed by the digital economy, particularly targeting income earned by foreign companies from India without a physical presence. It was first implemented in 2016 and has since been expanded.

Key Features of the Equalisation Levy:

  • Purpose:
    • It aims to tax digital transactions, ensuring that foreign e-commerce and digital service providers contribute to India’s tax revenue, even if they lack a permanent establishment (PE) in India.
    • Often called the "Google Tax," it addresses the imbalance between domestic and foreign companies in the digital space.
  • Scope:
    • Initial Phase (2016): Introduced via Chapter VIII of the Finance Act, 2016, it imposed a 6% levy on payments for online advertising services, digital advertising space, or related facilities provided by non-resident companies to Indian residents or non-residents with a PE in India. This applies only if the annual payment exceeds ₹1 lakh (approximately $1,200 USD).
    • Expanded Phase (2020): The Finance Act, 2020 broadened the levy to include e-commerce supply or services by non-resident e-commerce operators, effective from April 1, 2020. This carries a 2% tax on gross consideration received from:
      • Sales of goods or services to Indian residents or users with an Indian IP address.
      • Sales of advertisements targeting Indian customers.
      • Sales of data collected from Indian users.
      • The threshold for this is ₹2 crore (approximately $240,000 USD) in annual revenue from these activities.
  • Applicability:
    • Applies to non-resident entities without a PE in India.
    • For the 6% levy, the payer (Indian resident or non-resident with a PE in India) deducts and deposits the tax.
    • For the 2% levy, the non-resident e-commerce operator is responsible for paying the tax directly.
 

 

Base Erosion and Profit Shifting (BEPS)

The government states that both the Equalisation Levy and Significant Economic Presence (SEP) are in line with India’s commitment to the Base Erosion and Profit Shifting (BEPS) Action Plan formulated by the Organisation for Economic Co-operation and Development (OECD).

  • As per the OECD’s official website, Base Erosion and Profit Shifting (BEPS) refers to tax strategies employed by multinational corporations to exploit gaps in tax regulations, shifting their profits to jurisdictions with little or no taxation, thereby reducing their tax liabilities.

  • The OECD/G20 BEPS Project provides governments with frameworks and tools to curb tax avoidance, ensuring that corporate profits are taxed in the countries where the underlying economic activities occur and where value is actually generated.

  • BEPS Action 1 addresses the significant challenges posed by the digital economy, aiming to develop a globally accepted solution. According to the OECD’s policy paper, an ‘Equalisation Levy’ is suggested as a potential approach to mitigate direct tax concerns arising from digital business models.

  • In October 2021, India, the United States, and other members of the OECD/G20 Inclusive Framework reached an agreement to implement a two-pillar strategy to manage tax complexities linked to the expansion of the digital economy.

  • The global tax deal’s two-pillar solution comprises:

    • Pillar One, which involves reallocating a portion of profits to the jurisdictions where businesses operate.

    • Pillar Two, which introduces a minimum tax and a subject-to-tax rule to ensure fair taxation.

 
 
Follow Up Question
 

1.With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct? (UPSC CSE 2018)

1. It is introduced as a part of the Income Tax Act.

2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

Select the correct answer using the code given below :

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

 

Answer (d)
 

Statement 1: "It is introduced as a part of the Income Tax Act."

  • The Equalisation Levy was introduced through Chapter VIII of the Finance Act, 2016, not as a part of the Income Tax Act, 1961. It is a separate tax mechanism outside the framework of the Income Tax Act, designed specifically to address digital transactions by non-residents without a permanent establishment (PE) in India.
  • While it interacts with the Income Tax Act (e.g., income subject to the levy is exempt from income tax under Section 10(50)), it is not legislated within the Income Tax Act itself.
  • Conclusion: This statement is incorrect.

Statement 2: "Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the 'Double Taxation Avoidance Agreements'."

  • The Equalisation Levy is a unilateral tax imposed by India and is not classified as an income tax. Double Taxation Avoidance Agreements (DTAAs) typically cover taxes on income (e.g., corporate tax, personal income tax) and allow tax credits for such taxes paid in another country to avoid double taxation.
  • However, the Equalisation Levy is a transaction-based tax (akin to a withholding tax on specific services), not an income tax. Most DTAAs do not explicitly cover such levies unless specifically negotiated. As of 2016 (and even up to 2018, when this question was framed), India’s DTAAs with countries like the U.S., U.K., or others did not generally recognize the Equalisation Levy as eligible for tax credits, though this depends on the specific treaty and the home country’s tax laws.
  • For example, the U.S. has historically not allowed credits for India’s Equalisation Levy under its tax system, treating it as a non-creditable foreign tax unless explicitly adjusted in bilateral talks (which hadn’t occurred by 2018).
  • That said, some interpretations suggest that non-resident entities could potentially claim relief in their home country if their domestic tax laws or specific DTAAs allow credits for such levies. However, this is not a guaranteed or standard provision under most DTAAs with India at that time.
  • Conclusion: Given the context of 2018 and the general structure of DTAAs, this statement is not universally correct but has some ambiguity. For UPSC purposes, it is typically considered incorrect unless evidence of widespread credit availability under DTAAs is provided, which was not the case then
 

 

 
 
Subject and Subject Wise Notes for the Sunday Exam (Free)
 
Subject Topic Description
Polity Centre and State relations Centre State and interstate relations
Environment & Ecology Marine Ecosystem Marine Ecosystem
Economy Consumer Rights Consumer Rights
Ancient History Buddhism Buddhism
 

 

UPSC EXAM NOTES will be conducting both Prelims and Mains exams every Sunday as part of the Integrated Mains and Prelims (IMPM) Program. This program provides a comprehensive approach to UPSC exam preparation, ensuring that candidates are well-prepared for both stages of the exam.

Program Highlights:

  • Daily Study Keys: Each day, we will provide keys that outline what to read, focusing on the most relevant topics and current affairs.
  • Subject Notes: In addition to daily keys, we will supply detailed subject notes to help you build a strong foundation in all necessary areas.
  • Sunday Exams: Every Sunday, a combined exam will be held, encompassing the daily keys' content and subject notes, along with a culmination of current affairs from various sources. These exams will cover both Prelims and Mains syllabi.
  • Format: Exams will be available in both online and offline formats to cater to different preferences and situations.

Duration: The IMPM plan is a one-year program, ensuring continuous and structured preparation over 12 months. With regular testing and consistent study guidance, this program is designed to maximize your chances of success in the UPSC exams

 
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