Background of Equalisation Levy
Business may be conducted in digital domain without regard to national boundaries. This may dissolve the link between an income - producing activity and a specific location. To tackle taxation issues in transaction conducted in cyber space, equalization levy has been imposed.
The Finance Act 2020 has been enacted
after it received the assent of the President. The provisions
of equalization levy are not part of the income-tax law. This levy is under a
separate provision of law.
A. Charge
of Equalisation Levy
This levy shall come into force on June 1, 2016. As per Section 165 of the Finance Act, 2016, equalization levy shall be 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 Covered Under Equalisation Levy
- 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.
Example:
Mr. A has availed the service
of Facebook for business promotion and has made a payment of Rs. 2,00,000 to
Facebook for the advertising services availed.
Solution:
As
per provisions of section 165, Mr. A shall be required to deduct an
equalization levy @ 6% from the payment of Rs. 2,00,000/- to Facebook, i.e. Rs.
12,000/- shall be deducted and deposited as equalization levy and Facebook
shall receive the payment of Rs. 1,88,000/-.
When Equalisation
Levy is not applicable
- 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 exceeds Rs. 1 lakh in any previous year.
The
amount of equalisation levy so deducted by the payer has to be paid to the
credit of the government by 7th day of the month following the month
in which the equalisation levy is deducted.
Even if equalisation
levy is not deducted, the payer is liable to pay the levy to the credit of
central government.
Due Date
of Furnishing the statement
Due date
of furnishing equalisation levy statement (in Form No. 1) is on or before 30th
June of Financial Year ended. This is the annual statement.
Interest
Simple interest
is charged at 1% of the outstanding levy for every month or part thereof is
delayed.
Penalty
Situation |
Penalty (in
addition to paying equalisation levy and interest) |
Failure to deduct equalisation levy (wholly or
partly) |
A
penalty equal to amount of equalisation levy |
Failure to deposit with government |
Rs. 1000 for each
day of default (not to exceed amount of equalisation levy) |
Failure to furnish statement |
Rs.
100 for each day of default |
Income
Tax Exemption
When equalisation levy is deducted under the above provisions, income of the recipient non- resident is exempt under section10(50).
B. Equalisation levy on e-commerce supply or services
This
levy shall come into force from 1 April, 2020. The Finance Act, 2020 has introduced
a new provision i.e. section 165A in the Finance Act, 2016, to enhance the
scope of the Equalisation Levy. Equalisation Levy will now be extended to an
e-commerce operator 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 – It 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
- 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
For the
above purpose 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 is 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.
Collection
& recovery
The equalisation levy shall be paid by every e commerce operator to the credit of government quarterly within the following due dates:
Date of
ending of quarter |
Due Date |
30 June |
7
July |
30 September |
7 October |
31 December |
7
January |
31 March |
31 March |
Furnishing the statement
Every e
commerce operator shall furnish a Statement electronically within a specified time
in a specified form in respect of e commerce supply of goods or services during
the financial year.
Interest
Simple interest is charged at 1% of the outstanding levy for every month or part thereof is delayed.
Penalty
Situation |
Penalty (in
addition to paying equalisation levy and interest) |
Failure to deduct equalisation levy (wholly or partly) |
A
penalty equal to amount of equalisation levy |
Failure to furnish statement |
Rs. 100 for each
day of default |
Income Tax Exemption
Income from the above activites in the hands of e-commerce operator is exempt under section 10(50) with effect from the assessment year 2021-22.
Thanks for reading my article.
CA Rahul Mittal
+91-99917-25373
Thanku sir. . I need it
ReplyDeleteVery well shared sir... Now come online with these relevant information.
ReplyDelete๐
Very well explained, covered ball points, thank you Rahul Ji
ReplyDeleteA good article
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