CA Darshak shah and Aayusha Jain
In the era of the digital world, many E-commerce operators functions without business presence in source country which has raised cause of concern for all Governments to tax digital transaction in conventional model which recognises physical presence only. OECD is laying efforts on structuring digital tax which we are tracking regularly.
Meanwhile in 2016, India had introduce tax in form of Equalisation levy only for advertisement service rendered by non resident (likes of FB, twitter, etc) to resident of India which is extended now to other E-Commerce operator for host of service rendered to resident of India and in specified cases to non resident also. This article attempts in analysing & summarize the scope of various provision of digital taxation with key notes
Key Notes:-
1. Since it is direct entry in Act objective is not described separately but it seems to cover wide range of digital transactions by Non resident EC operators which otherwise was difficult to tax in old convention
2. Equalisation Levy paid to central government is currently not eligible for tax credit in foreign country; so additional cost
3. Equalisation Levy @ 6 % is not levied on personal advertisement services provided by Non-resident. Whereas, Equalisation Levy @ 2 % is also levied on sale of goods or services for personal use.
4. FA 2020 amendment is trying to reach extra territorial jurisdiction to tax a Non resident EC-operator. So interesting to see the administration by Tax office
5. If deductible Equalisation Levy has not been deducted or paid by resident payer @ 6% for advertisement services before the due date specified in section 139(1), then the consideration paid or payable to non-resident shall be disallowed while computing the income under the head PGBP.
6. Income arising from ecommerce supply or services which is covered by Equalisation Levy is exempt from tax under section 10(50), to avoid double taxation.
7. Signing of Multilateral Instrument (MLI) might unwind the situation to certain extent.
| Particulars | Section 194O | Equalisation levy | Section 9 | |
| 6% | 2% | |||
| Status of Payer paying consideration | Resident / Non Resident | Resident | Resident / Non Resident* | Resident / Non Resident |
| Obligation of tax payment | EC- Operator to withheld | Resident Payer
(refer to note no 5) |
EC- Operator | EC- Operator |
| Services provided to | ResidentE-commerce participant | Resident Business entities | Resident / Non Resident | Resident / Non Resident |
| Services provided by | EC operator | Non-Resident | Non-Resident EC operator | Non Resident |
| Services Covered | Any sale of Goods /provision of Services | Advertisement services received or receivable | Sale of data and online sale of goods &provision of services owned or facilitated by EC operator. And
For Non-resident Sale of data & Advertisement connected to India |
Sale of Advertisement or sale of data and online sale of goods & services |
| Rate | 1%, 5% if PAN is not available | 6% | 2% | Taxable as business profit |
| Interest on non-payment of tax | 12% to be paid by EC- operator. | 12% to be paid by the payer. | 12% to be paid by EC operator. | Interest on non payment of tax |
| Limit | Sales of EC- participant is >Rs. 5 lakhs | Amount of consideration should exceed one lakh rupees. | Sales or gross receipts of the EC- operator>Rs. 2 crores during the previous year. | As will be prescribed |
| E Return | EC operator | Payer of Equalisation Levy (Resident) | EC operator (Non-resident) | Income tax return |
* Non-resident only in case of Sale of data & Advertisement connected to India
Concluding Remarks:
In the nutshell,the levy, has now been expanded to cover digital E-commerce transactions provided by EC operator to resident as well as to non resident.This might lead into increase in cost of digital service if burden of tax is passed on to consumers
Disclaimer: The above article is based on the authors’ personal view. The author shall not be responsible for any extracts or references made
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