Equalisation levy is a tax that is levied on certain types of digital transactions that are carried out by non-resident companies in India. Till now, India has introduced 2 such levies for addressing the digital economy tax challenges.
|
Equalisation Levy 1.0 |
Introduced through Finance Act 2016 |
|
Equalisation Levy 2.0 |
Introduced through Finance Act 2020 |
Equalisation levy is not a part of the Income Tax Act, 1961 instead it was introduced by Finance Act as a new provision in the Indian tax system. It is not a tax on income like direct tax instead it is tax levied on transaction like indirect tax.
The below article is divided into 4 parts as follows:
- Applicable
Provisions.
- Cases
where Equalisation Levy Shall not be charged.
- Compliances.
- Penal
Provision.
Applicable Provisions:
As per Section 163 of
the Finance Act 2022, Equalisation levy apply to consideration received or
receivable for:
1. Specified services or
2. E-commerce supply or services.
Section 164 defines the above terms as:
|
Specified service. |
E-commerce supply or services. |
|
(i) Online advertisement |
(i) Online sale of goods owned by the e-commerce
operator |
|
(ii) Any provision for digital advertising space |
(ii) Online provision of services provided by the
e-commerce operator |
|
(iii) Any other facility or service for the
purpose of online advertisement |
(iii) Online sale of goods or provision of
services or both, facilitated by the e-commerce operator |
|
(iv) Any other service as may be notified by the
Central Government |
(iv) Any combination of activities listed in
clause (i), (ii) or clause (iii) |
Charge is created by Section 165 and 165A for Specified services and E-commerce supply or services.
For Specified Service Payer* shall
deduct EL @ 6% if the aggregate amount of services received or receivable by
him is more than one lakh rupees in a previous year.
For E-commerce supply or services,
Payee** shall pay EL @ 2% of the consideration received or receivable.
*/**Charging Section 165 & 165A defines the Payer and payee as below:
|
Transaction Type |
Payer |
Payee |
|
For Specified services |
A Resident OR Non- Resident having a PE in India |
Non- Resident |
|
For E-commerce supply or services |
(i) A Resident (ii) Non- Resident in Specified
Circumstances (iii) Person using IP address located in India |
Non- Resident ECO |
Cases where Equalisation Levy Shall not be charged:
Charging Section 165 & 165A also defines the
cases where Equalisation levy shall not be charged are as below:
|
S. No |
Equalisation Levy 1.0 |
Equalisation Levy 2.0 |
|
1 |
Where the non-resident providing the specified
service has a permanent establishment in India and the specified service is
effectively connected with such permanent establishment |
Where the E-commerce operator making or providing
or facilitating e-commerce supply or services has a permanent establishment
in India and such e-commerce supply or services is effectively connected with
such permanent establishment. |
|
2 |
Where the aggregate amount of consideration for
specified service received or receivable in a previous year by the
non-resident from a person resident in India and carrying on business or
profession, or from a non-resident having a permanent establishment in India,
does not exceed one lakh rupees: or |
In case where sales, turnover, or gross receipts
of the e-commerce operator from the e-commerce supply or services made or
provided or facilitated is less than two crore rupees during the previous
year. |
|
3 |
Where the payment for the specified service by
the person resident in India, or the permanent establishment in India is not
for the purposes of carrying out business or profession. |
Where the equalisation levy 1.0 is leviable. |
Compliances on payer and payee part:
Section
166, 166A and 167 read with Rule 5 of the Equalisation rules 2016, deals with the compliances
to be done which are as follows:
|
Party |
For Equalisation Levy 1.0 |
For Equalisation Levy 2.0 |
|
Payer |
Deduct: Deduct the Equalisation levy
@6% from the amount paid or payable to a non-resident. Deposit: Payer shall pay to the credit of the
Central Government by the seventh day of the month immediately following the
said calendar month. Furnish Statement: Furnish a
Statement in Form No. 1 on or before 30th day of June immediately
following that financial year. |
- |
|
Payee |
- |
Deposit: Deposit Equalisation Levy @ 2% of
Consideration to the credit of the Central Government by the seventh day of
the month immediately following the said calendar Quarter. (Except for Jan to
March Quarter Where due date is 31st March) Furnish Statement: Furnish a
Statement in Form No. 1 on or before 30th day of June immediately
following that financial year. |
Penal Provision:
Interest on delayed
payment of equalisation levy:
Interest @1% p.m. for
delayed payment for every month or part of the month under Section 170.
Penalty is as below:
|
Fail to Deduct Whole or part of EL. |
Penalty of amount equivalent to Equalisation levy
fails to deduct or Pay under Section 171. |
|
After deduction, fail to pay the levy to the
government. |
Penalty of Rs. 1000 for every day (max amt= EL)
under Section 171. |
|
Fail to Furnish the Statement. |
Penalty of Rs. 100 for each day under Section
172. |
Note: - As per Section 10(50) of the
income Tax Act, 1961, Income of the payee Non-Resident will be exempt in case
where any income arising from any “specified service provided” or “E-commerce
supply or services made or provided or facilitated” and chargeable to
equalisation levy.
Disclaimer: The facts and opinions
written in this article are truly based on the relevant provisions and
information available at the time of preparation. The article does not
constitute any professional advice or a formal recommendation. The author has
undertaken the utmost care to disseminate true and correct views and does not
accept liability of any errors or omissions.
Posted by: Admin