Background
The Finance Act, 2016 introduced Equalisation Levy which is charged at the rate of 6% from the consideration paid or payable to a non-resident person for the online advertisement services. The Finance Bill, 2020, as passed by the Lok Sabha, has extended the scope of Equalisation Levy to cover within its scope the consideration received or receivable for e-commerce supply or services made or facilitated by an e-commerce operator.
Equalization Levy
When to be charged?
From 01-04-2020, the equalisation levy shall be charged at the rate of 2% from the consideration received or receivable by an e-commerce operator from e-commerce supply of goods or services made or provided or facilitated by it to the following persons:
1. A person who is resident in India;
2. non-resident in ‘specified circumstances
3. who buys such goods or services or both 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
E-commerce supply or services means:
1. Online sale of goods owned by the e-commerce operator;
2. Online provision of services provided by the e-commerce operator;
3. Online sale of goods or provision of services or both facilitated by the e-commerce operator; or
4. Any combination of above activities
specified circumstances means
1. sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement though internet protocol address located in India; and
2. 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 not to be charged?
1. where the e-commerce operator has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment
2. where the equalisation levy is leviable on online advertisement and related activities
3. 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 INR 20 million during the financial year.
Who needs to comply with such compliance?
The equalization levy is to be paid by the non-resident e-commerce operator quarterly within the following due dates:
| Date of ending of the quarter | Due date |
| 30 June | 7 July |
| 30 September | 7 October |
| 31 December | 7 January |
| 31 March | 31 March |
Consequences of non-compliance?
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
Whether income tax benefits available?
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, and chargeable to equalization levy as explained above.
What would be the impact?
Previously, the government had introduced the concept of “Significant Economic Benefits” in the definition of “Business Connection” which specifically aimed towards getting the non-resident entities operating in India through digital means under the tax regime. However, the treaties benefitted the respective non-residents as there was no such provision under the PE articles of the treaties. Having said that, the Government of India has now introduced this concept of taxing such e-commerce companies under equalization levy which will have a significant impact on the non-resident supplying goods and services digitally. This is so because the definition of ‘e-commerce operators’ and ‘e-commerce supply or services’ are very wide in scope. Therefore, taxpayers may now need to evaluate various scenarios to understand the implication under this. For instance, even where the parent company provides any IT services to its subsidiary company, such provisions will have to be looked into from applicability perspective.
More importantly, it is also pertinent to note that supply of goods or service from one non-resident to other also may attract these provisions (where the is some nexus with India). It is important to note that the provisions of equalization levy are not part of Income-tax and therefore benefit of treaty may not be available in relation to such levy. Additional guidance on this subject is awaited from the Government on these provisions.
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