Equalisation levy – Taxation going Digital

By: Nikita Theresa Noronha - 10th December, 2020

A. Equalisation Levy u/s 165 of the Income Tax Act, 1961

Scope & Applicability

As part of the measures to address the tax challenges posed by the increased digitalization of the economy, an "Equalisation levy" was introduced by the Finance Act, 2016 on certain non-resident businesses. W.e.f June 1, 2016 a levy was charged at the rate of 6% of the amount of consideration for specified services received or receivable by a non- resident from

• a person resident in India and carrying on business or profession; or
• a non-resident having a permanent establishment in India.

Specified Services mean

• online advertisement; or
• any provision for digital advertising space or any other facility or service for the purpose of online advertisement; or
• any other service as may be notified by the central government in this behalf.
  online" means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network

Equalisation Levy is not applicable if

• The non-resident providing specified service has a permanent establishment in India and income from such specified service is effectively connected to this permanent establishment; or
• Where the specified service is not for the purpose of carrying out business or profession; or
• The aggregate amount of consideration payable for the specified service received or receivable does not exceed Rs. 1 lakh in any previous year.

The measure imposes an obligation on Indian business residents to deduct the amount of the equalisation levy on payments made for such specified services and to remit the amounts to the government.

Who needs to comply and related timelines?

The equalisation levy so deducted during any calendar month shall be paid by every assessee to the credit of the Central Government by the 7th day of the month immediately following the said calendar month.

Income Tax Exemption

When equalisation levy is deducted under the above provisions, income of the recipient non- resident is exempt under section 10(50).

B. Equalisation levy on e-commerce supply or services u/s 165A

Scope & Applicability

The scope of the Equalisation Levy has been enhanced by the Finance Act 2020. W.e.f 1 April, 2020, the Equalisation Levy has been extended to e-commerce operators on e-commerce supply and services.

Equalisation Levy shall be charged at the rate of 2% of the amount of consideration received or receivable by an e commerce operator from e commerce supply of goods and services made by it-

• To a person resident in India; or
• To a non-resident in the specified circumstances; or
• To a person who buys such goods/services using internet protocol address located in India.

E-commerce operator means a non-resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services or both.

Online supply or services mean

• Online sale of goods owned by the e commerce operator; or
• Online provision of services provided by the e commerce operator; or
• Online sale of goods or provision of services facilitated by the e-commerce operator; or
• Any combination of the above activities

Specified circumstances mean

• Sale of advertisement, which targets a customer, who is resident in India or a customer who access the advertisement though internet protocol address located in India; and
• Sale of data collected from a person who is resident in India or from a person who uses internet protocol address located in India

When Equalisation Levy not applicable

• E commerce operator has a permanent establishment in India and such e-commerce supply is effectively conducted with such PE;
• Equalisation levy is levied under the provisions given under section 165 of the Finance Act, 2016; or
• 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 Rs. 2 crore during the previous year.

Who needs to comply and related timelines?

Unlike in the case of the equalisation levy on specified services when the resident payer was responsible to deduct and pay the equalization levy, this levy on the e-commerce operator is the responsibility and is to be discharged by the operator itself, on a quarterly basis.

Income Tax Exemption

The income-tax law has been amended to provide for exemption arising from any income arising from any e-commerce supply or services made or provided or facilitated on or after 1 April 2021 and chargeable to equalisation

C. Consequences of delay in payment or non-compliance u/s 170 & 171

Every assessee or e-commerce operator, who fails to credit the equalisation levy or any part thereof as required under section 166 or section 166A to the account of the Central Government within the period specified in that section, shall be liable to pay the below:-

Interest: Delayed payment carries simple interest at the rate of 1 percent for every month or part of a month

Penalty: Failure to pay equalisation levy attracts penalty equal to the amount of equalisation levy

Any assessee or e-commerce operator who having deducted the equalisation levy referred to in sub-section (1) of section 165, fails to pay such levy to the credit of the Central Government in accordance with the provisions of sub-section (2) of that section shall be liable to pay in addition to paying the levy in accordance with the provisions of sub-section (2) of that section and interest in accordance with the provisions of section 170, a penalty of one thousand rupees for every day during which the failure continues, so, however, that the penalty under this clause shall not exceed the amount of equalisation levy that he failed to pay.

D. Filing of Equalisation Levy Statement and Consequences of Default

Due date of furnishing Equalisation Levy Statement (Form-1) is on or before 30th June of Financial Year ended. This is the annual statement.

Penalty for failure of filing statement of compliance is INR 100/day for each day the non-compliance continues.

If a false statement has been filed then the person may be subjected to imprisonment of a term up to 3 years and a fine.

Note:-

Similar to liabilities of the equalisation levy as previously imposed, this expanded levy would not be part of the Income-tax Act and, thus, would not be subject to provisions of India’s income tax treaties.

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