Have you availed the services on which Equalization levy is levied?

Introduction: Addressing tax challenges in the digital era, India pioneered by introducing Equalization Levy (EL) in the Finance Act of 2016. This article navigates through the intricacies of EL under sections 165 and 165A, focusing on specified services, rates, responsibilities, due dates, and consequences for non-compliance.

Preliminary:

Addressing the tax challenges arising on account of digitalization has been the most area of discussions around the globe. India became the 1st nation to accept the challenge and solved tax challenges arising on account of digitalization. While addressing the Finance Budget for of Year 2016, the then FM Mr. Arun Jaitley introduced a new concept called Equalization Levy.

Equalization Levy u/s 165  and u/s 165A of Finance Act, 2016:

As per Section 165 of the above act, Equalization Levy (EL) @ 6% is to be held while making payment for availing the “specified service” from non residents having no permanent establishments in India. The ceiling limit in a FY is Rs. 1,00,000/-

Specified Services:

Followings are included under the definition of Specified Services:

1. Online Advertisements

2. Any provision for digital/online advertising

3. Any other service as notified by CG

As per Section 165A of the act, EL @ 2% of total consideration is to be paid by the ECO for online supply of Goods & Services. The ceiling limit in a FY is Rs. 2,00,00,000/-.

Analysis of above two sections:

• While the service recipient is held responsible in case of EL levied u/s 165, service provider is held responsible in case of EL levied u/s 165A.
• EL is withheld @6% in case of section 165 and EL is to be paid @2% in case of section 165A.
• The ceiling limit in case of section 165 is Rs. 1,00,000/- and Rs. 2,00,00,000/- in case of section 165A.
• Applicable from 01.07.2016 in case of section 165 while in case of section 165A, applicability is from 01.04.2020.

Due date of deposit of EL to the concerned authority:

• The equalization levy collected under section 165 for a calendar month shall be paid to the Central Govt. within 7th of the next month.
• The equalization levy  under section 165A for a each quarter shall be paid to the Central Govt. within 7th of the next month immediately following the said Quarter except for Quarter 4, where EL shall be paid on or before 31st March itself.

Due date of furnishing of Annual Statement:

• Statement in Form No.1 to be filled on or before 30^th June immediately following the FY.

Consequences for non-adherence of Section 165/165A of the act:

• Interest @ 1% per month or part of the month after due date till the date of payment
• Penalty: (over and above equalization levy)

1. For Non-deduction: Penalty equal to amount of equalization levy

2. For Non-payment: Penalty equal to Rs. 1000/day (maximum upto equalization levy not paid).

Revised Return:

Revised statement shall be filed before the expiry of 2 years from the end of the financial year in which the service was provided in the following cases:

1. If the assessee fails to furnish the equalization levy statement within the prescribed time or

2. If he notices any omission or wrong particulars in the statement filed.

Conclusion: Adherence to sections 165 and 165A of the Finance Act, 2016 is crucial for taxpayers to avoid interest and penalties. Timely filing of returns under EL ensures compliance with India’s approach to tax challenges arising from digitalization. Stay informed, stay compliant.