E-Commerce is here to stay. If the pandemic wasn’t enough to impress this point, suspension of international travel, visa delays and immigration bans are only increasing adaptability to E-Commerce amongst the masses.
Recognizing that electronic transactions have far reaching implications with respect to taxation, the Indian legislature has put in place certain tax measures with respect to E-Commerce transactions.
This article is going to juxtapose three such direct tax measures and analyse the interplay between these provisions-
1. Equalisation Levy u/s 165 of Finance Act 2016
2. Equalisation Levy u/s 165A of Finance Act 2016 (as amended by Finance Act,2020) –
3. TDS under section 194O
| Sl. No. | Basis of distinction | Equalisation Levy u/s 165 of Finance Act, 2016(also called Google Tax) | Equalisation Levy u/s 165A of Finance Act, 2016 (Amended by Finance Act,2020) | TDS u/s 194-O |
| 1 | Objective | Enable India to tax transactions of a Non-Resident (NR) which have a source in India. * | Expand the applicability of equalisation levy | Similar to any other TDS provision – to ensure the person earning income doesn’t escape without paying taxes and filing Income Tax Return (ITR). ** |
| 2 | When does it apply | Payment for advertising by: a. Resident carrying on business/profession in India; OR b. NR having PE in India to a NR not having a PE in India |
E-Commerce Supply by NR Ecommerce Operator to: a. Resident b. NR in some cases c. to a person who buys such products/services using Internet Protocol (IP) address located in India |
Attracted on payment/Credit by E-Commerce operator (Resident or NR) to Resident E-Commerce Participant |
| 3 | Threshold | Consideration for online advertising should exceed 1 Lakh per FY | Consideration received by E-Commerce Operator from Sale of goods/services (Not buyer specific) to persons mentioned in Sl. No. 2 (above) should exceed 2 Crore per FY | Status of E-Commerce participant: >Individual or HUF – Threshold of 5 lakhs per FY > Others – No threshold |
| 4 | Rate | 6% of the consideration for online advertising | 2% of turnover of the E-Commerce Operator from E-Commerce supply in India | 1%
(5% if no PAN furnished) |
| 5 | Exclusions | Advertisement for personal purposes | a. If the NR E-Commerce operator has a PE in India; OR
b. The transaction is covered under equalisation levy u/s 165 |
a. If the E-Commerce participant is a NR b. Amount received by the E-Commerce for hosting advertisements c. Amount received by the E-Commerce operator for services not in connection with facilitating sale of good/services on behalf of the E-Com participant |
* Physical advertisement revenue was subject to tax in India but advertisement revenue of NR platforms (eg. Google, Facebook) from India was not getting taxed as they didn’t have a Permanent Establishment (PE) in India. Thus, digital platforms of NRs were enjoying an advantage. This equalisation levy aims to bring down the advantage to level the playing field between NR and Resident advertisers.
** Certain E-Commerce participants were not filing ITR and not paying taxes despite earning income from E-Commerce operations. This section is introduced to ensure these E-Com participants are caught in the tax net
Analysis and Interplay
- Section 165 of Finance Act 2016 deals with payment for online advertising between two parties. However, section 165A of Finance Act 2016 (as amended by Finance Act 2020) and section 194-O of the Income Tax Act (ITA) deal with supplies facilitated by an E-Commerce operator – thereby implying there would be three parties to the transaction (i.e. E-Commerce operator, Seller or E-Commerce participant, Buyer on the E-Commerce platform).
- 165A of Finance Act 2016 (as amended by Finance Act 2020) is concerned with who the buyer on the NR E-Commerce platform is whereas 194-O is concerned with whether the E-Commerce participant i.e. seller, is a resident. Thus, there can be a scenario in which both provisions, 165A of Finance Act 2016 (as amended by Finance Act 2020) and 194-O of the ITA apply to a transaction –
Example: A Buyer, resident in India purchases goods on an E-Commerce platform run by a NR from a seller who is a resident in India. In such a scenario, the NR E-Commerce Operator that facilitated the transaction would be liable to pay an equalisation levy @ 2% of its turnover from E-Commerce supply in India (subject to other conditions of the section being satisfied) and would also be liable to deduct tax @1% u/s 194-O of the ITA from the payment to be made to the seller[1].
As we have seen earlier in cross border transactions, any tax levy or withholding taxes are borne by Indian service receiver, who in turn increases prices of goods or services. Thus, the liability of equalisation levy @ 2%, though cast upon the NR E-Commerce operator, would most likely be borne by the buyer of goods/recipient of services from such platforms in the form of increased prices that they pay for the goods/services.
[1] Note: Since the scope of this article is limited to direct taxes, the GST implications of the aforementioned transaction have not been touched upon.
Author Bio
sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India.
consideration received or receivable from e-commerce supply or services shall include—
i) consideration for sale of goods irrespective of whether the e-commerce operator owns the goods, so, however, that it shall not include consideration for sale of such goods which are owned by a person resident in India or by a permanent establishment in India of a person non-resident in India, if sale of such goods is effectively connected with such permanent establishment;
(ii) consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator, so, however, that it shall not include consideration for provision of services which are provided by a person resident in India or by permanent establishment in India of a person non-resident in India, if provision of such services is effectively connected with such permanent establishment.
Compliances
i) The equalization levy shall be paid by the e commerce operator to the credit of Central Govt by 7th of the month following such quarter and for the last quarter ( Jan-March) shall be deposited by 31st March.
ii) Every e commerce operator shall prepare and furnish an annual statement in form no 1in respect of e commerce supply or services during each financial year by 30th of June following such financial year.
Section 10(50) exempts any income arising from specified services or arising from any e commerce supply or services which is chargeable to equalization levy. However, the income referred to in this clause shall not include and shall be deemed never to have been included any income which is chargeable to tax as royalty or fees for technical services in India under the Income Tax Act read with the agreement notified by the Central Government under section 90 or section 90A.