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CA Abhinandan Baid

From 1st June 2016, the Govt. of India has introduced a new tax named, Equalisation Levy (EQL).Also popularly called “Google Tax”.

Equalisation Levy was introduced in the Union Budget 2016 and is included in the Chapter VIII of the Finance Act 2016. The Govt. had set up a committee earlier this year which gave its recommendations in March, 2016, which included adding more services under the ‘specified service’ banner. The recommendations included added services like “designing, creating, hosting or maintenance of website, digital space for website, advertising, emails, online computing, blogs, online content, gaming, online data or any other online facility and any provision for uploading, storing or distribution of digital content”.

Q. What is EQL?

A. EQL stands for Equalisation Levy. It will be charged on digital service provided in India (mainly Advertising) by non-resident company.

Q. Why is it charged?

A. The non-resident companies would often escape any kind of Tax in India. To curb this, Govt. introduced EQL @ 6% on all those non-resident entities who do not have any permanent establishment in India.

Q. Which services comes under it purview?

A. EQL is chargeable to specified services mentioned in the notification. So far only Advertisement has been added to the list of ‘specified services’.

Q. What are specified services?

A. Specified Services include online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf.

Q. To whom is it applicable?

A. Any non-resident entity that does not have any permanent establishment in India will come under this Tax. EQL is applicable to entities such as Google, Yahoo, Facebook etc. who earn huge revenues from India by providing digital service of Advertising.

Q. What is the rate?

A. EQL is levied at the rate of 6% on specified digital services.

Q. How will it be implemented?

A. EQL will be deductible at source, in similar way as withholding tax . Its operation will be same as TDS. The payment made to digital service provider will be only after deducting 6% as EQL. Threshold limit has been set as Rs.1Lac. It means if the specified services received by the service receiver is above Rs.1 lac during the year from the non-resident company, then EQL would be levied.

For Example: Google charges Rs. 10,00,000 from Flipkart for providing advertising service, then Flipkart shall pay Google only Rs. 9,40,000 after charging EQL of Rs. 60,000 ( 10,00,000 @ 6% ).

Q. What if an entity fail to charge EQL from the service provider?

A. In case an entity(service receiver) fails to charge EQL from the service provider then the EQL burden will be shifted to the recipient of the service i.e. service receiver

Q. Any EQL exemption?

A. It is enlisted as below :

• EQL is not levied if the total amount for services received in the previous year is equal or less than Rs.1 lakh.

• EQL is levied only to B2B(Business to Business), not in case of B2C (Business to Consumer)

• If company registered in Jammu & Kashmir, then EQL is not applicable on such company.

Q. How does it affect businesses?

A. It is expected that the service provider will shift the burden of such tax on the recipient of the service by charging the tax amount to the recipients causing money drain to domestic companies and start-ups.

Q. Is it applicable to individual consumer?

A. EQL is only applicable to business to business (B2B) transactions. Businesses to consumer (B2C) transactions are exempt from such tax.

Computation and Payment of Equalisation Levy

Computation – EQL, interest and penalty payable shall be rounded off to nearest multiple of ten rupees

Payment – EQL should be paid monthly through EQL challan by the 7th day of the month immediately following the month.

EQL Return

As per Section 167 of Finance Act 2016,Rule 5 and 6 , Annual return is required to be furnished electronically in Form No.1 on or before 30th June immediately following that financial year.

Processing of EQL Return

Where any levy, interest or penalty is payable under EQL provision, a notice of demand specified in Form No.2 shall be served upon the taxpayer.

Consequences for Non Compliance of EQL

For delayed payment of EQL

• Simple Interest @1% for delayed payment of EQL for every month or part of the month is delayed in payment of EQL

For failure to deduct or pay EQL

• Fails to deduct the whole or any part of EQL – Penalty equal to the amount of EQL

• EQL deducted , fails to pay such levy – A penalty of Rs.1,000 for every day during which the failure continue, however penalty shall not exceed the EQL itself.

• Further, Disallowance of Expense u/s 40(a)(ib) if EQL is not deducted on the consideration which is deductible as per the provisions of Finance Act 2016

Filing of Appeal

AuthoritySections & RulesForm No.FeesDuration
CIT(A)Section 174, Rule 8 of Finance Act 2016
Form No.3Rs.1000Within 30 days from the receipt of the penalty order
Appellate Tribunal
Section 175, Rule 9 of Finance Act 2016
Form No. 4 (In Triplicate)
Rs.1000Within 60 days from the receipt of the order from CIT(A)

(Author is associated with Finobal Services Private Limited & can be reached at abhinandan.baid@finobal.com & Ph.no. – 98309 55110)

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