Equalisation Levy 1.0

Equalisation Levy was introduced by the Finance Act, 2016 with effect from 1st June 2016. The equalisation levy was levied at the rate of 6% of the amount of consideration for any specified service received or receivable by a person, being a non-resident from—

(i) Any person resident in India carrying on business or profession in India or

(ii) A non-resident having a permanent establishment in India.

Specified Services means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement or as specified by Central Government.

It would only be applicable if the aggregate amount of consideration for specified services exceeds Rs. 1 Lakh during the year. It covers only B2B transaction.

The equalisation levy so deducted during any calendar month shall be paid by every assessee to the credit of the Central Government by the 7th day of the subsequent month. Every assessee shall furnish Equalisation Levy Statement (Form-1) is on or before 30th June of Financial Year ended.

In case of failure, every assessee shall pay simple interest at the rate of 1% of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed. In case of any failure in complying with the provisions of the Equalisation Levy, the amount paid for such services won’t be allowed to be claimed as an expense for income tax purposes.

How is Equalisation levy different from TDS under section 194O?

Sl. No. Basis of distinction Equalisation Levy u/s 165 of Finance Act, 2016(also called Google Tax) TDS u/s 194-O
1 Objective Enable India to tax transactions of a Non-Resident (NR) which have a source in India. 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
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 during the year. 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 1%

(5% if no PAN furnished)

Equalisation Levy 2.0

Finance Act 2020 amended Finance Act, 2020, On and from the 1st day of April, 2020, there shall be charged an equalisation levy at the rate of 2% on the amount of consideration received or receivable by an e-commerce operator from e-commerce supply or service made or provided or facilitated by it –

1. To a person resident in India or

2. to a non-resident in the following circumstances:

  • sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement though internet protocol address located in India; and
  • sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India

E-commerce Operator has been defined to mean a non-resident who owns, operates or manages digital or electronic facility or platform for the online sale of goods or online provision of services or both.

Equalisation Levy 2.0 covers B2B and B2C transactions.

It covers transaction between two non-residents.

It shall not be charged where equalisation levy is leviable at the rate 6% or where sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than two crore rupees during the previous year.

New Proposal

On Feb 01, 2021 vide Finance Bill, 2021; it is proposed to substitute the Explanation to the said clause with Explanations 1 and 2.

Explanation 1 proposes to clarify that the income referred to in this clause shall not include and shall never be deemed to have included any income which is chargeable to tax as royalty or fees for technical services in India under the said Act read with the agreement notified by the Central Government under section 90 or section 90A.

Explanation 2 proposes to define the expressions “e-commerce supply or services” and “specified service” for the purposes of the said clause. These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.

Interpretation of the new proposal, which may take effect from 1st April 2021:

1) Income taxable as royalty or fee for technical services not to be included within the ambit of Equalisation Levy.

Some companies opted to pay levy due to the lower tax rate. Therefore, non-inclusion of consideration which are taxable as royalty or fees for technical services from the purview of equalisation levy ensures that royalty and fee for technical services will continue to be taxable at the rate of 10 per cent on gross basis as per Section 115A of the Income Tax Act, 1961.

2) Clarification on online sale of goods and services

The government has clarified that e-commerce supply or service will be subject to equalisation levy when any of the following activities take place online:

  • acceptance of offer for sale; or
  • placing of purchase order; or
  • acceptance of the purchase order; or
  • payment of consideration; or
  • supply of goods or provision of services, partly or wholly.

3) Other Clarifications

The taxable amount for which the equalisation levy has to be paid by an e-commerce platform will include the entire sale amount. Section 10(50) will provide for exemption of income on which equalisation levy was levied with retrospective effect from April 01, 2020.

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About the Author : Ruchi AnandAuthor is Ritu Chauhan, FCA, Partner in Ruchi Anand & Associates, a leading and prominent Chartered Accountant Firm in India, founded in 2000 and having existence in New Delhi and Gurgaon. Ruchi Anand & Associates is a group of accounting professionals, providing end to end solutions in diversified fields of Corporate Finance, beginning from registration of company in India to compliance and procedural parts to Financial Reporting, Auditing and other areas of consultancy/liaison.

Author Bio

Qualification: CA in Practice
Company: Ruchi Anand & Associates
Location: New Delhi, IN
Member Since: 29 Jan 2021 | Total Posts: 3

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