Over the decade, use of technology has drastically changed the global business structure by creating immense transformations in the way companies globally conduct their businesses. Technology has expanded the outreach and connectivity of the businesses and with the use of digital space, companies located outside India are able to run their businesses in digital domain itself without existence of any physical presence in India i.e. without facing any location barriers in India. Due to this, such foreign companies were generating huge revenues from India without paying any taxes therein due to non-existence of their physical presence in the country. Accordingly, along with the opportunities for expansion of the economy, such digital business spaces were creating new tax challenges for the economy. In order to address such tax challenges, concept of “Equalisation Levy” was introduced by the Government back in the year 2016 vide Finance Act, 2016 (“FA, 2016” for short) with the intention of taxing certain digital transactions on recommendation made by Organization for Economic Co-operation and Development (OECD) in Base Erosion and Profit Shifting project (BEPS). Scope of equalisation levy as introduced vide FA, 2016 was restricted to certain specific activities relating to advertisement only. In the year 2020, to widen the coverage and scope of Equalisation Levy, the Government vide Finance Act, 2020 (“FA, 2020” for short) has further inserted new provisions in FA, 2016 so as to expand the scope of Equalisation Levy and cover within its ambit some other digital business platforms through which non-resident players are earning huge revenues in India without paying any taxes in India.
In relation to the above, as per Section 165 of the FA, 2016 Equalisation Levy is chargeable @ 2% on the advertisement and related services provided by any non-resident (“Equalisation Levy on Advertisement” for short) to the specified persons. Further, as per newly inserted Section 165A of FA, 2016 (as inserted vide FA, 2020), Equalisation Levy is now also chargeable on the online supply of goods or provision of services by a non-resident through an e-commerce platform (“New Equalisation Levy” for short).
In light of the above, it is pertinent to understand the provisions and the evolution of Equalisation Levy over past four year which was first introduced on advertisement and now has been extended to goods or services sold or facilitated by e-commerce operators. In respect to this, we will be analysing the Major distinctions/similarities between levy that was introduced by FA, 2016 and the New Equalisation Levy.
Page Contents
- 1. Intention of Government behind enactment of provisions of Equalisation Levy
- 2. Applicability of Equalisation Levy
- 3. Whether services/ supplies made by a non-resident to another non-resident are chargeable to Equalisation Levy
- 4. Threshold for charging Equalisation Levy
- 5. Rate of Equalisation Levy
- 6. Non- applicability of Equalisation Levy
- 7. Mechanism and Liability of making payment of Equalisation Levy
- 8. Due date for depositing Equalisation Levy
- 9. Consequences of non-deduction/ non-payment of Equalisation Levy
- 10. Other Compliances
- 11. Consequences of non-furnishing the Annual Statement u/s 167 of the FA, 2016
1. Intention of Government behind enactment of provisions of Equalisation Levy
♠ Equalisation Levy on Advertisement:
OECD in the BEPS project under Action Plan 1 recommended various measures to tackle the emerging direct tax challenges wherein one of the recommendation was to impose withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition ofEqualisation Levyon consideration for certain digital transactions received by a non-resident from a resident or from a non-resident having Permanent Establishment (“PE” for short) in other contracting state pursuant to which Equalisation Levy on Advertisement was introduced vide FA, 2016.
♠ New Equalisation levy:
New Equalisation Levy has been recently introduced vide FA, 2020 itself and was not a part of the Finance Bill, 2020 due to which it is difficult to understand the actual intention behind insertion of New Equalisation Levy; however, it seems to be an extension to the scope of the recommendation made by the OECD.
2. Applicability of Equalisation Levy
♠ Equalisation Levy on Advertisement:
Equalisation Levy on Advertisement @ 6% is chargeable on the consideration received or receivable by a non-resident, having no PE in India, for providing online advertisement services or any digital advertising space or any other facility or service for online advertisement related services (“Specified Services” for short) to an Indian resident carrying on a business or profession or to any non-resident person having PE in India (“Service Recipient or Assessee” for short).This levy covers only business to business transactions.
♠ New Equalisation levy:
New Equalisation Levy is applicable on the e-commerce supplies or services provided or facilitated by an e-commerce operator to the specified persons. In relation to this, e-commerce operator is a non-resident person who is either owning or is operating or is managing an e-commerce platform or a facility for supplying goods or providing services or for facilitating supply of goods or provision of services to the customers. Furthermore, e-commerce supply or services in relation to this means the following activities either performed individually or in combination of the following activities:
- Online sale of goods owned by the e-commerce operator
- Provision of any online services by the e-commerce operator
- Online sale of goods or provision of services or both merely facilitated by the e-commerce operator.
New Equalisation Levy is attracted where e-commerce supply or services are made to an Indian resident, a non-resident in some specified circumstances or to any other person who buys such supplies or services using any IP address located in India.
3. Whether services/ supplies made by a non-resident to another non-resident are chargeable to Equalisation Levy
♠ Equalisation Levy on Advertisement:
Specified Services provided by a non-resident service provider to a non-resident Service Recipient is chargeable to Equalisation Levy only when such non-resident Service Recipient has PE in India.
♠ New Equalisation levy:
Equalisation Levy majorly aims to cover the supplies/ services made by a non-resident to an Indian resident. However, New Equalisation Levy is also chargeable in the following circumstances even when the e-commerce supply or services are made by an e-commerce operator to a non-resident person:
1. Where any advertisement has been sold by an e-commerce operator to any other non-resident person wherein such sale of advertisement targets a customer who is an Indian resident or a customer who accesses such advertisement through the IP address located in India.
2. Where any data has been sold by an e-commerce operator to a non-resident person wherein such data has been collected from any Indian resident or from any person who uses IP address located in India.
4. Threshold for charging Equalisation Levy
- Equalisation Levy on Advertisement:
Equalisation Levy on Advertisement is attracted where the aggregate consideration received or receivable from the Service Recipient of the Specified Services exceeds Rs. 1,00,000/- during the previous year.
- New Equalisation levy:
New Equalisation Levy is chargeable for all the e-commerce supplies or services made or facilitated by the e-commerce operator to the specified persons where the sales/ gross receipts/ turnover of the e-commerce operator exceeds Rs. 2 Crore during the financial year.
5. Rate of Equalisation Levy
The rate of Equalisation Levy on Advertisement is 6% of the consideration as against 2% in the case of New Equalisation Levy.
6. Non- applicability of Equalisation Levy
- Equalisation Levy on Advertisement:
Apart from the threshold, Equalisation Levy on Advertisement is not applicable where the non-resident providing Specified Services has a PE in India and such Specified Services are effectively connected with such PE in India.
- New Equalisation levy:
Similarly apart from the limitation of threshold, the New Equalisation Levy is also not applicable where e-commerce operator has a PE in India and e-commerce supply or services are effectively connected with such PE. Also, it is not attracted where the transaction is covered within the ambit of Equalisation Levy on Advertisement.
7. Mechanism and Liability of making payment of Equalisation Levy
- Equalisation Levy on Advertisement:
The mechanism for collection and payment of Equalisation Levy on Advertisement is quite similar to the concept of deduction of tax at source as given under Income-tax Act, 1961. The compliance burden has been imposed on the Service Recipient. The Service Recipient is liable to deduct Equalisation Levy @ 6% from the consideration paid or payable by him to non-resident service provider and is also required to pay such deducted amount to the credit of Central Government within the time specified.
- New Equalisation levy:
New Equalisation Levy is directly charged from the e-commerce operator from the consideration received or receivable by the e-commerce operator.
8. Due date for depositing Equalisation Levy
- Equalisation Levy on Advertisement:
Due date for making payment in case of Equalisation Levy on Advertisement is within 7 days of the month following the month in which equalisation levy is deducted.
- New Equalisation levy:
Payment of New Equalisation Levy is to be made on Quarterly basis as per the following due dates:
| S.No. | Date of ending of the quarter of the F.Y. | Due Date of payment |
| 1. | 30th June | 7th July |
| 2. | 30th September | 7th October |
| 3. | 31st December | 7th January |
| 4. | 31st March | 31st March |
9. Consequences of non-deduction/ non-payment of Equalisation Levy
♠ Equalisation Levy on Advertisement:
On account of non-deduction of Equalisation Levy on Advertisement, Service Recipient shall be liable to pay:
- Amount of Equalisation Levy
- Penalty* equal to the amount of Equalisation Levy which was failed to be deducted
Further, on account of delayed payment after deduction of Equalisation Levy, Service Recipient shall be liable to pay:
- Amount of Equalisation Levy
- Interest @1% p.m. of the levy u/s 170 of FA, 2016 for the delayed period
- Penalty* of Rs. 1,000/- per day for the period of failure not exceeding the amount of Equalisation Levy which he has failed to pay to the credit of Government.
♠ New Equalisation levy:
On account of delayed payment of New Equalisation Levy, the e-commerce operator shall be liable to pay:
1. Amount of Equalisation Levy
2. Interest @1% p.m. of the levy u/s 170 of FA, 2016 for the delayed period
3. Penalty* equal to the amount of Equalisation Levy which was failed to be deducted
10. Other Compliances
- Equalisation Levy on Advertisement:
As per Section 167 of the FA, 2016, the Service Recipient is required to file an annual statement to the prescribed authorities in Form 1 on or before 30th June immediately following the financial year.
- New Equalisation levy:
As per Section 167 of the FA, 2016, the E-commerce operator is also required to file an annual statement before the prescribed authorities within the prescribed time limit as may be notified.
11. Consequences of non-furnishing the Annual Statement u/s 167 of the FA, 2016
- Equalisation Levy on Advertisement:
Penalty* of Rs. 100 per day will be levied on the Service Recipient for non-furnishing of the annual statement.
- New Equalisation levy:
Similar to the earlier provisions, penalty* of Rs. 100 per day will also be levied on the e-commerce operator for non-furnishing of the annual statement.
*No penalty shall be levied on proving the reasonable cause for such failure to the satisfaction of the Assessing Officer.
Prepared by:- CA Saloni Singhal
Associate at Chir Amrit Legal LLP
Madam one small doubt, whether we have to deduct TDS u/s 195, for payments on which equalization levy applied u/s 165??