Due Date for furnishing Statement under ‘Equalisation Levy’ (EL) for FY 2020-21 is 30.06.2021 || Compilation of Complete Provisions For Your Easy Understanding
A. Brief Background
The Organisation for Economic Co-operation and Development (OECD) through the Base Erosion and Profit Shifting (BEPS) project under Action Plan 1 recommended a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider and from consideration paid or payable for certain digital transactions received by a non-resident from a resident or a non-resident having a Permanent Establishment in another contracting state.
The Finance Act 2016 introduced the equalisation levy with effect from 01-06-2016 only in respect of the consideration received or receivable by a non-resident from providing online advertising services to a resident person carrying on any business or profession in India or a non-resident person having a permanent establishment in India.
The Finance Act 2020 has expanded the scope of Equalisation levy to cover non-resident e-commerce operators within its ambit.
Equalisation Levy (“EL”) has, thus, been introduced in India in two variants, the first one was in 2016 commonly known as “Google Tax” or “Equalization Levy 1.0” – this tax was introduced as a withholding tax. The second was in 2020 commonly known as the “Amazon Tax” or “Equalization Levy 2.0” – this tax is directly levied on the Non-resident.
The EL 1.0 covered only services, whereas the EL 2.0 covered e-commerce supply or services. The EL is introduced via part of Finance Act and not by way of amendment to the Income Tax Act 1961.
Introduction of EL 2.0 was made by way of amendment to Finance Act 2016; there is neither a memorandum for introduction of this tax nor this finds mention in the budget speech of the FM. Hence, we will have to rely more on the memorandum for introduction of EL 1.0. In the memorandum, it was acknowledged by the Government that due to the advancement of technologies, it was not able to tax the digital businesses, as they did not have permanent establishment in India. Hence, they introduced equalization levy to tax non-residents for certain specified services, who do not have a PE in India. Thus, it is an attempt to tax income which is otherwise not taxable as per the current international tax framework.
The only de-link between EL and income tax is the PE. Income tax needs PE to tax an income and EL does exactly opposite i.e. taxes where PE is absent. Otherwise both achieve same results. Income tax rate is higher as it taxes net income, whereas the rates of EL are relatively lower as the tax base is gross revenue without deduction of expense.
Thus, the whole purpose of the EL is to tax the “Non- Resident that has No PE in India”, which otherwise is not taxable under the income tax treaty(ies).
B. Importance of Equalisation Levy For Discussion On Date
The due date of furnishing by every [assessee or e-commerce operator], a statement containing all particulars, as prescribed in Form no.1, in respect of all specified services or e-commerce supply or services, as the case may be, during FY 2020-21 is within 30th day of June, 2021 which is near at hand.
Even though the provisions with regard to Equalisation Levy have been enshrined as mandatory law more than 5 years ago, most resident entities are observed to be either still not aware of or not paying attention to compliance under the new provisions and hence prone to incremental tax liabilities due to non- deduction of equalization levy from payments made to non- residents for availing online/ digital advertising services (as defined under “specified services” by EL 1.0), non-furnishing of any statements under EL laws and consequent interest & penalties. Hence, this article is to bring more awareness of these important laws in a complete manner to help know & understand compliance, changes as being continuously done and its growing importance in view of ever- expanding digital economy.
C. Provisions of Equalisation Levy (EL) As Amended Till Date
The provisions were originally enacted in Finance Act 2016 by way of insertion of Chapter VIII in Finance Act 2016 from Sections 163 to Section 180. The CBDT issued a notification Ref. 37/ 2016 dated 27 May 2016 stating that the provisions of Chapter VIII relating to the equalisation levy would come into effect from 1st June 2016.
The CBDT had also notified the Equalisation Levy Rules 2016 on the same date – it laid down the procedural framework for the compliances to be undertaken and appeals process to be followed for such levy. These Rules were also made effective from 1st June 2016 and further amended by “Equalisation Levy (Amendment) Rules 2020” as notified w.e.f. 28.10.2020.
The Finance Act 2020 expanded the scope of Equalisation levy to cover non-resident e-commerce operators also within its ambit with effect from 1st April 2020. Certain amendments were also done by Finance Act 2021.
The bare Provisions and the relevant Rules as amended upto date may be noted in the Appendix given at the bottom of this article. We note below synopsis of major provisions in a tabular format, for the 2 categories of businesses they are applicable to, by way of comparison for easy understanding :
|Sr||Particulars||Non-Resident Providing “Specified Services”||Non-Resident “e-commerce operator” (ECO) providing “e-commerce supply or services”|
|Consideration received or receivable, but it shall not include the consideration, which are taxable as royalty or fees for technical services in India under the Income-tax Act, read with the agreement notified by the Central Government under section 90 or section 90A of the said Act|
|3.||Important Definitions (Sec 164)||“Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);
“equalisation levy” means the tax leviable on consideration received or receivable for any specified service [or e-commerce supply or services] under the provisions of this Chapter;
“permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on : hereinafter referred by us as “PE”
“online” means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network;
“specified service” means
“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 : hereinafter referred by us as “ECO”
“e-commerce supply or services” means—
|4.||Charge of Equalisation Levy (EL)||Sec 165(1) :
i. a person resident in India and carrying on business or profession; or
ii. a non-resident having a permanent establishment in India.
Refer to definition of “specified service” as detailed by us in Para 3) above.
|Sec 165A(1) :
i. to a person resident in India; or
ii. to a non-resident in the specified circumstances as referred to in sub-section (3); or
iii. to a person who buys such goods or services or both using internet protocol address located in India.
Refer to definition of “ e-commerce operator ” and “e-commerce supply or services” as detailed by us in Para 3) above and Appendix for further definitions u/s 165A(3).
|5.||Exclusions from EL||Sec 165(2) : EL shall not be charged, where :
i. the non-resident providing the specified service has a PE in India and the specified service is effectively connected with such PE;
ii. the aggregate amount of consideration, received or receivable in a previous year, does not exceed Rs.1,00,000/-
iii. where the payment for the specified service by the person resident in India, or the PE in India is NOT for the purposes of carrying out business or profession
|Sec 165A(2) : EL shall not be charged, where :
i. where the ECO, making or providing or facilitating e-commerce supply or services, has a PE in India and such supply or services is effectively connected with such PE;
ii. where the EL is leviable under section 165; or
iii. sales, turnover or gross receipts, as the case may be, of the ECO from the e-commerce supply or services is less than Rs.2.0 Crores during the previous year.
|6.||Who Will Discharge EL||Sec 166 : by way of withholding tax, from amt paid/ payable to the Non- Resident, BY the resident or Non- resident having PE in India||Sec 166A : Shall be paid directly by the ECO (non-resident as defined)
|7.||Manner of Collection & Recovery||Sec 166(1) : Every person, being a resident and carrying on business or profession OR a non-resident having a PE in India (referred to as “assessee”) shall DEDUCT the EL, from the amount paid/ payable to the non-resident, in respect of the specified service @ 6%, if the aggregate consideration amount in a previous year exceeds Rs.1,00,000/-;
Sec 166(2) : EL so deducted during any calendar month, shall be paid by assessee, to the credit of the Central Govt, by the 7th day of immediately following calendar month
Sec 166(3) : If the assessee fails to deduct the EL, he shall still be liable to pay the levy, within same time as stated above
|Sec 166A : shall be paid by every e-commerce operator, to the credit of the Central Govt, quarter-wise as under :
|8.||Payment of Equalisation levy
|The assessee or ECO shall pay the amount of such levy, by remitting it into the Reserve Bank of India or in any branch of the State Bank of India or of any authorised Bank accompanied by an equalisation levy challan no. ITNS 285|
|9.||Furnishing of Statement
(Sec 167 Read with Rules 5 & 6) :
|Every assessee or ECO shall furnish a statement containing all particulars, as prescribed in Form no.1, in respect of all specified services or e-commerce supply or services, as the case may be, during such financial year, within 30th day of June immediately following that financial year :
The PDGIT (Systems) or DGIT (Systems) under the Income Tax Act are the prescribed authorities for ensuring compliance under these provisions.
If fails to furnish within time allowed or notices errors :
May furnish such statement or revised statement, at any time before the expiry of 2 years from the end of the financial year in which the [specified services was provided or e-commerce supply or services was made or provided or facilitated]
Or else, the Assessing Officer may serve a notice upon such assessee or ECO requiring him to furnish the statement, within 30 days from the date of service of the notice.
|10.||Processing of Statement (Sec 168)||Statement furnished u/s 167 shall be processed u/s 168 and an intimation to be sent to the assessee or ECO, specifying the sum determined to be payable by, or the amount of refund due to him.
Provided that no intimation under this sub-section shall be sent after the expiry of 1 year from the end of the financial year in which the [statement or revised statement] is furnished.
CBDT is the prescribed authority here for making a scheme for centralized processing of such statements.
|11.||Rectification of Mistake (Sec 169)
|By AO, within 1 year from end of the FY in which intimation issued, for any mistake apparent from record, either suo motu or when brought to his notice BY assessee or ECO.|
|12.||Interest on delayed payment of EL
|Simple interest payable 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|
|13.||Penalty for failure to deduct or pay EL
|Any assessee or ECO, who fails to deduct or pay or having deducted the EL but fails to pay, as the case may be, shall be liable to pay :
i) in case of failure to deduct or pay, penalty equal to the amount of EL as not deducted or deposited, in addition to paying the EL and the interest as applicable (u/s 166 r/w 170)
ii) in case of having deducted the EL but failure to pay, a penalty of Rs.1000/- for every day during which the failure continues (but not exceeding the EL as outstanding), in addition to paying the EL and the interest as applicable (u/s 166A r/w 170)
|14.||Penalty for failure to furnish Statement
|Where an assessee or ECO fails to furnish the statement within the time prescribed under sub-section (1) or sub-section (3) of section 167, he shall be liable to pay a penalty of Rs.100/- for each day during which the failure continues.|
|15.||Penalty not to be imposed in certain cases
|(1) No penalty shall be imposable for any failure referred to in Sections 171 or 172, if the assessee or ECO proves to the satisfaction of the AO that there was reasonable cause for the said failure.
(2) No order imposing a penalty under this Chapter shall be made unless the assessee or ECO has been given a reasonable opportunity of being heard.
|16.||Notice of Demand
|Notice of Demand to be in Form no.2 for any levy, interest or penalty as may be determined payable in consequence of any order passed.
However, Intimation issued pursuant to processing of statement u/s 168(1) shall be deemed to be notice of demand if any sum determined payable in course of such processing.
|17.||Appeal to CIT (A)
(Sec 174 r/w Rule 8)
|An assessee or ECO, aggrieved by a Penalty Order may appeal to CIT(A), within 30 days from date of receipt of the penalty order from the AO.
Appeal to be in Form no.3 as prescribed, to be filed with fees of Rs.1000/- and to be filed electronically. The provisions of Sec 249 to 251 of the Income Tax Act shall, so far as may be, apply to such appeal.
|18.||Appeal to Appellate Tribunal
(Sec 175 r/w Rule 9)
|An assessee or ECO, or AO as may be directed by CIT, aggrieved by the order of CIT(A) u/s 174 may appeal to the Appellate Tribunal, within 60 days from date of receipt of the Order from the CIT(A).
Appeal to be in Form no.4 as prescribed and to be filed with fees of Rs.1000/- . The provisions of Sec 253 to 255 of the Income Tax Act shall, so far as may be, apply to such appeal.
|19.||Punishment for False Statement
|Punishment with imprisonment for a term which may extend to 3 years and with fine for any willful false statement in any verification or statement|
|20.||Institution of Prosecution (Sec 177)
|No prosecution shall be instituted against any person for any offence under section 176 except with the previous sanction of the Chief Commissioner of Income-tax.|
|21.||Application of certain provisions of Income Tax Act
|The provisions of [sections 119, 120], 131, 133A, 138, 156, Chapter XV and sections 220 to 227, 229, 232, 260A, 261, 262, 265 to 269, 278B, 280A, 280B, 280C, 280D, 282 and 288 to 293 of the Income-tax Act shall so far as may be, apply in relation to equalisation levy, as they apply in relation to income-tax.|
D. Few Other Important Amendments Made Under Income Tax Act, Consequent to Enactment of Equalisation Levy (EL)
1) In order to avoid double taxation, exemption provided u/s 10 of the Income Tax Act by Finance Act 2016 itself for any income arising from providing specified services or any e-commerce supply or services on which equalisation levy is chargeable, as under:
(50) any income arising from any specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 comes into force 19[or arising from any e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 20] and chargeable to equalisation levy under that Chapter.
21[Explanation 1.—For the removal of doubts it is hereby clarified that the income referred to in this clause shall not include and shall be deemed never to have been included any income which is chargeable to tax as royalty or fees for technical services in India under this Act read with the agreement notified by the Central Government under section 90 or section 90A.
Explanation 2.—For the purposes of this clause,—
(i) “e-commerce supply or services” shall have the meaning assigned to it in clause (cb) of section 164 of the Finance Act, 2016 (28 of 2016);
(ii) “specified service” shall have the meaning assigned to it in clause (i) of section 164 of the Finance Act, 2016 (28 of 2016).]
19. Ins. by the Act No. 12 of 2020, w.e.f. 1-4-2021.
20. Sub. for “2021” by the Act No. 13 of 2021, w.e.f. 1-4-2021.
21. Explanations 1and 2 Sub. for Explanation by the Act No. 12 of 2020, w.e.f. 1-4-2021.
2) Expenses on “Specified Services” Not Allowable as Deduction If Equalisation Levy Not Deducted
This is very important to note. In order to ensure compliance with the provisions of this Chapter, an insertion was further done under Section 40(a) of the Income Tax Act by the Finance Act 2016 itself to provide that the expenses incurred by the assessee towards specified services chargeable under this Chapter shall not be allowed as deduction in case of failure of the asseseee to deduct and deposit the equalisation levy to the credit of Central government. Relevant provisions under the Income Tax Act reproduced as under :
40. Notwithstanding anything to the contrary in sections 30to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,—
(a) in the case of any assessee—
(ib) any consideration paid or payable to a non-resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of the Finance Act, 2016, and such levy has not been deducted or after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :
Provided that where in respect of any such consideration, the equalisation levy has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid;
E. Relevant Enclosures for Easy Reference
Following documents enclosed for easy reference :
|1||Download Annex-1||Challan No ITNS 285 for deposition of EL|
|Read Annex-2||Equalisation Levy (Amendment) Rules 2020 as notified on 28.10.2020, with following amended forms:
|3||Download Annex-3||Appendix containing Relevant paras from the Memorandum of the Finance Bill 2016 explaining the necessity of insertion of such provisions and the bare Provisions and the relevant Rules as amended upto date|
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