Understanding Equalisation Levy in India: Provisions, Applicability, and Implications for Non-Residents and E-commerce Operators
Learn about Equalisation Levy in India, the first country to introduce this concept. Explore its provisions, applicability, rates, and examples. Understand the distinctions between specified services and supplies by E-commerce operators. Discover the implications for non-resident service providers and the responsibility of E-commerce operators. Find out about payment procedures, non-applicability scenarios, and related provisions such as furnishing statements and consequences of failure to deduct or delay payment. Lastly, explore the possibility of claiming tax credits for Equalisation Levy paid in India in the country of residence.
Equalisation Levy
India was the first country in the world to introduce the concept of Equalisation Levy. These provisions were introduced in line with the recommendations of the Base Erosion and Profit Shifting (BEPS) Action Plan 1 which talks about the tax challenges arising for the digital economy.
Equalisation levy in India, was introduced vide the Finance Act 2016 to tax sale of goods or services through electronic or digital means by Non-Residents in India. The provisions relating to Equalisation Levy are contained in section 163 to 180 of the Finance Act 2016 read along with the Equalisation Levy Rules, 2016. Let us discuss the provisions pertaining to Equalisation Levy in detail along with necessary examples wherever required.
Applicability
Initially, Equalisation Levy was leviable only on certain specified services relating to online advertisement. However, with effect from 1st April 2020, the scope was expanded to include sale of goods or provision of services by an E-commerce operator.
There are various distinctions between the specified services vis-à-vis the supplies made by the E-commerce operator. Such differences are plotted in the below table, for ease of reference:
Basis of distinction |
Specified services | Supplies by E-commerce operator |
Applicable from | 01st April 2016 | 01st April 2020 |
Section of the Finance Act 2016 under which covered | Section 165 | Section 165A
(Introduced in Finance Act 2020 by way of an amendment to Finance Act 2016) |
Definition (provided under Section 164 of the Finance Act 2016) | Specified services means:
|
E-commerce supply or services means:
It does not matter whether the goods sold by the E-Commerce Operator are owned by the E-Commerce Operator |
Supplier of goods or services | Non-resident person
Residential status shall be determined under the Income Tax Act, 1961 |
E-commerce operator
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 |
Recipient of goods or services |
|
|
Rate of levy | 6% | 2% |
Manner of payment of levy to government (Section 166 and 166A) | The person responsible for paying the consideration to the service provider shall deduct the levy and pay the same to the government every month within the due date | The E-commerce operator is responsible for payment of the levy to the government every quarter |
Due date for payment
(Section 166 and 166A) |
7th of every month immediately following the month in which the deduction was made | Quarter ending 30th June – 7th July
Quarter ending 30th Sept – 7th October Quarter ending 31st Dec – 7th January Quarter ending 31st March – 31st March |
Non-applicability |
|
|
Certain examples to better understand the above provisions:
Example 1: Facebook (a Non-Resident not having a PE in India) provides online advertisement services to M/s ABC Ltd. (a company resident in India).
Here, services specified under section 165 of the Finance Act 2016 is being provided by a Non-Resident (Facebook) who does not have a PE in India to a person resident in India (ABC Ltd) carrying on business or profession. Therefore, M/s ABC Ltd will deduct Equalisation Levy at 6% and remit it to the government.
Example 2: Facebook (a Non-Resident not having a PE in India) provides online advertisement services to M/s ABC Inc (a non-resident who has a branch in India).
Here, services specified under section 165 of the Finance Act 2016 is being provided by a Non-Resident (Facebook) who does not have a PE in India to a Non-resident having a PE in India. Therefore, M/s ABC Inc will deduct Equalisation Levy at 6% and remit it to the government.
Example 3: Alibaba (a Non-Resident E-commerce operator not having a PE in India) delivers goods to Mr. A (a person resident in India).
Here, the supply of goods by Alibaba falls within the definition of E-commerce supply or services in terms of section 165A of Finance Act 2016. Therefore, Alibaba shall be liable to pay equalization levy at the rate of 2% to the government of India. It does not matter whether Mr. A consumes the goods for his business or for his personal use.
Example 4: In the above example if Mr. A is a non-resident and has come to India on a vacation. He orders certain goods from Alibaba to be delivered to his address in the foreign country.
Still, Equalisation levy would be applicable since the goods were ordered using an Interest Protocol (IP) address located in India. The place of delivery, ultimate use of the goods or services by the customer and the residential status of the customer, does not matter.
Example 5: M/s ABC Inc (an E-commerce operator) provides advertisement services to M/s XYZ Inc. of USA. The advertisement targets customers in India.
The above service will be covered under the provisions of Section 165A and therefore, equalization levy @ 2% shall be applicable.
Example 6: In the above example, if M/s ABC Inc provides advertisement services to M/s XYZ Inc. of USA (which has a PE in India), then the services will get covered under section 165 and equalization levy @ 6% shall be deducted by XYZ Inc and remitted to the government.
Example 7: Facebook (a Non-Resident not having a PE in India) provides advertisement services to Mr. A advertising that Mr. A is looking for a bride.
Here, services specified under section 165 of the Finance Act 2016 is being provided by a Non-Resident (Facebook) who does not have a PE in India to a person resident in India (Mr. A). However, the said advertisement is for the personal purpose of Mr. A and not for his business or profession. Therefore, Equalisation Levy shall not be applicable.
Example 8: Mr. A (a person resident in India) sells goods owned by him through Alibaba (an E-commerce operator). In this case, Equalisation Levy shall not be applicable Facebook (a Non-Resident not having a PE in India) provides advertisement services to Mr. A advertising that Mr. A is looking for a bride.
Here, services specified under section 165 of the Finance Act 2016 is being provided by a Non-Resident (Facebook) who does not have a PE in India to a person resident in India (Mr. A). However, the said advertisement is for the personal purpose of Mr. A and not for his business or profession. Therefore, Equalisation Levy shall not be applicable.
Thus, where the services get covered under section 165, section 165A shall not be applicable.
Certain other provisions relating to Equalisation levy
Failure to deduct or delay in payment of Equalisation levy
Can the Non-resident claim the tax credit in the country of residence of the Equalisation Levy paid in India?
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