1. Online advertising spends in India have risen on account of greater digital penetration and increased use of the web as a credible advertising medium. The biggest beneficiaries of the increase in this expenditure have been online advertising companies (Facebook, Google etc.) who have seen their revenues from India steadily rise.
2. A new chapter “Equalization Levy” is introduced by Finance Act 2016, in income tax act, 1961. By introduction of this levy many untaxed transactions of non resident companies will come under its radar. This tax is also called Google Tax, since companies like Google & Facebook are mostly likely to effected by this levy. The concept of this levy is similar to TDS.
Reason for introducing equalization levy
1. As per Income Tax, a non resident’s Indian income is always taxable. But there is an exception to this rule.
2. If a non resident does not have permanent establishment in India, then any income accrues in India is not taxable at all.
3. The Organization for Economic Cooperation and Development (OECD), India is also member of it, has decided that a mechanism should be framed so that no single international transaction should remain untaxed.
4. For this reason, India has also adopted Base Erosion and Profit Shifting (BEPS) project under Action Plan 1 recommended by OECD.
Effect on Economy:-
1. As per report by The Economics Times, Google’s revenue from India was Rs. 4,108 crore in 2014-15, according to disclosures by the company.
2. Facebook‘s Topline was Rs. 123.5 crore in 2014-15.
Equalisation Levy as introduced by Union Budget 2016-17
1. CBDT notified Equalisation Levy Rules 2016 vide Notification No. 38/2016 dated on 27th May 2016.
2. It came into force on the 1st day of June 2016.
3. It is to tax the e-commerce transaction/digital business which is conducted without regard to national boundaries.
4. It is a tax deducted from any payment made to non residents for any specified transactions. It is applicable from 1st June 2016 @6%.
Specified Services for Equalisation Levy
1. Specified services includes the following services:
i) Online Advertisement
ii) Any provision of digital advertising space or any service for the purpose of online advertisement.
Note:- The central Government may add more services under specified services.
2. No levy if aggregate amount of consideration does not exceed Rs.1 lacs in any previous year.
To whom it is applicable?
3. The levy will be applicable :-
i) on the payments,
ii) received by a nonresident service provider,
iii) from an Indian resident or an Indian PE of a nonresident, in respect of the specified service.
Charging section and Deduction
1. A new Chapter VIII titled ‘Equalisation levy’ is inserted in the Finance Bill which will take effect from the date appointed in the notification to be issued by the Central Government.
2. It is deducted on date of payment or credit, whichever is earlier.
3. It is paid on or before 7thof following month in which it is deducted.
Exp:- if it is deducted in May, then it is paid on or before 7th of June.
Payment of Equalisation Levy
1. Every assessee who is required to deduct and pay equalisation levy, shall pay the amount of such levy to the credit of the Central Government by remitting it into the Reserve Bank of India or in any branch of the State Bank of India or of any authorised bank accompanied by equalisation levy challan.
Forms and due date of return
1. As per section 167 the statement of specified services is required to be furnished at the end of each financial year in Form No. 1 and on or before 3oth June immediately following that financial year.
2. The return can be furnished in the following manner:
i) Electronically under digital signature
ii) Electronically through electronic verification code
Note:- The Tax Officer has been empowered to issue notice for furnishing such statement, which then has to be furnished within 30 days from date of serving of such notice, where the same is not filed within the prescribed timeline.
Notice calling for statement of specified services.
Where an assessee fails to furnish the statement with the time specified in sub rule (2) of rule 5. the assessing officer may issue a notice to require such person to furnish the statement with in 30 days from the date of service of the notice
Can we revise the return?
The return so filed may be revised before end of two years from the end of the financial year in which the specified service was provided.
Interest for late payment of Equalisation levy
1. Section 170 provides for Interest on late payment of equalization levy.
2. Interest @1% p.m. shall be paid for every month or part of month by which such levy is delayed.
Penalty for failure to deduct or pay equalisation levy
1. Section 171 deals with penalty for failure to deduct or pay equalisation levy.
2. There are two situations:
i) If fails to deduct and pay:
In addition to interest under section 170, he shall pay penalty equal to amount of equalisation levy.
ii) If deduct but fails to pay:
In addition to interest under section 170, he shall pay penalty of Rs. 1000 for every day during which failure continues, however the amount of penalty can not exceeds the equalisation levy.
Penalty for failure to furnish the stat
1. Where an assessee fails to furnish the statement he shall be liable to pay penalty of Rs.100/- for each day during which the failure continues.
2. Section 173 provides that notwithstanding Section 171 or 172, no penalty shall be imposable for any failure if the assessee proves to the satisfaction of the assessing officer that there was a reasonable cause for the said failure.
Notice of demand:-
1. As per section 168, Where any levy, interest or penalty is payable under the equalisation levy provisions, a notice of demand specified in Form No. 2 shall be served upon the taxpayer.
2. Further, intimation issued upon processing of the statement of specified services shall also be deemed to be a notice of demand.
What is penalty for failure to file the return?
1. Section 172 deals with penalty for failure to file Return.
2. In such case penalty of Rs. 100 per day will be levied during the period which failure continues.
Who is empowered to make rules for equalisation levy?
1. Under Section 179 Central Government is empowered to make rules for carrying out the provisions of this chapter.
2. Central Government has notified Equalisation Levy Rule 2016 by notification No 38/2016
1. Section 174 prescribes any person aggrieved against an order imposing penalty may appeal to the CIT(A) in form no 3 within a period of 30 days from the date of receipt of the order and the provisions of Section 249 to Section 251 of the Income Tax Act shall apply
2. As per section 175 an appeal against the order of CIT(A) has to be filed with the Tribunal. within sixty (60) days of date of receipt of the order of CIT(A) in the prescribed Form No. 4.
3. Commissioner can also direct an assessing officer to appeal to the Tribunal against the order of the CIT(A).
4. Section 253 to 255 of the IT Act shall apply.
Punishment for False Statement
1. If a person makes a false statement in any verification under this chapter, or delivers an account or a statement which is false, and which he knows or believes to be false, or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine. (S.176)
2. Under S.177, no prosecution shall be instituted against any person for any offence under S.176, except with the previous sanction of the Chief Commissioner.