Equalisation Levy (‘EL’) on e-commerce supply of goods/ services by non-residents

A. Background of Equalisation Levy provisions

Equalisation Levy is a charge in addition to the Income-tax, which was introduced vide Finance Act, 2016.

-Under the erstwhile provisions, Indian residents were required to deduct EL at the rate of 6 percent, while making payment to non-resident (‘NR’) taxpayers in relation to ‘online advertisement’ and other specified services provided by NR to the Indian resident.

-Equalisation Levy was leviable if the amount of consideration to be paid to NR exceeded INR 1 lakh.

-Following are not covered under erstwhile provisions:

1. Where NR payer makes payment to another NR for advertisements targeting customers in India;

2. NR service provider has a Permanent Establishment (‘PE’) in India;

3. Payments made for other than specified services;

4. B2C contracts

B. Expanding the scope of Equalisation Levy provisions

  • EL @2% would be leviable on the amount of consideration received by an ‘e-commerce operator’ from e-commerce supply or service.
  • An e-commerce operator has been defined as 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.
  • An e-commerce supply or service has been defined as:

1. online sale of goods owned by the e-commerce operator;

2. online provision of service provided the by e-commerce operator; or

3. online sale of goods or provision of service or both, facilitated by e-commerce operator.

  • EL to be charged when the sale/ supply or facilitation is done by e-commerce operator to:

1. person resident in India;

2. to a non-resident in specified circumstances (i.e., sale of advertisement which targets customers in India or a customer who accesses advertisement through Indian IP address or sale of data collected from a person who is resident in India or from a person who uses internet protocol address located in India); or

3. a person who buys goods/ services using IP address in India;

  • EL is not to be levied where:

1. E – commerce operator has Permanent Establishment (‘PE’) in India and the e-commerce supply or service is linked to such PE;

2. Where the sales/ turnover/ gross receipts from e-commerce sale/ supply/ facilitation does not exceed INR 20 million; and

3. Where the EL is already covered under previous provisions (introduced by the Finance Act 2016)

  • Unlike existing EL provisions (applicable on digital advertising and similar payments) where the levy was required to be deducted by the person making payment to the non-resident, the new EL is to be deposited by the non-resident e-commerce operator (i.e., the recipient) as per prescribed mechanism. Further, the Act has also been amended to provide for tax exemption under section 10(50) in respect of income which has already been subjected to EL.

C. Exemption under S. 10(50) of ITA

  • 10(50) of ITA has been amended to state

Income arising from any “e-commerce supply or service” made or provided or facilitated on or after the 1st April 2021 and chargeable under EL chapter shall be exempt from income tax

  • The expanded EL provisions are applicable from 1 April 2020, however under S. 10(50) exemption is available on or after 1 April 2021. There is a date mismatch of one year, therefore, the exemption from income tax will apply on or after the 1 April 2021. However, representation have been made for suitable clarification in this regard.

D. Meaning of Consideration

  • Charge of EL is on amount of “Consideration” received or receivable by E – commerce operator from providing or facilitating the e – commerce services.
  • The term “Consideration” is not defined.
  • Where the E – commerce operator is selling goods or services to specified persons on its own platform the entire amount receivable may qualify as “amount of consideration”. However, issue arises on what will be “consideration” where E – commerce operator is a facilitator.
  • Let us take an example- In case where the E – commerce operator (Uber) operates and owns a Application (‘App’). Customers avail cab services online through App and payment is made directly to Uber (say Rs. 100). Uber retains its service charges (say Rs. 20) and remit the balance amount to Drivers (i.e. Rs. 80). Issue arises whether EL will be applicable on 100 or 20?
  • No clarification in this regard.
  • My View – As per my view the EL shall be charged on entire consideration i.e. Rs. 100.

Reason: In case Apple is selling Apple I Pad to Indian customers through its own website, in than case EL is required to be paid on entire consideration received by Apple. But if Amazon is selling Apple I Pad than we cannot say that Amazon is required to pay EL only on the facilitation fee. The issue is highly debatable.

E. Compliance

Particulars Expanded EL compliances
Due date for deposit of equalisation levy E – commerce operators are required to EL on quarterly basis

Date of ending of quarter Due date for deposit
30 June  7 July
30 September 7 October
31 December 7 January
31 March 31 March
Consequences of late payment Interest: Simple interest @ 1% of such levy for every month or part of month during which such failure continues

Penalty: Where the operator fails to pay whole or any part of the EL required to be paid by him, he shall be liable for penalty of an amount equal to the amount of EL that he failed to pay

Statement of EL Every operator shall prepare and deliver a statement of EL on or before 30 June of FY following the FY in which EL is chargeable.
Other provisions Other provisions relating to processing of statement, appeal, prosecution, etc. as applicable in case of Advertisement EL is equally made applicable to e – commerce provisions.

F. Case Studies

Let us understand the above with the help of case studies. (In all the below case studies the E -commerce operator is not having a PE in India)

Case Study 1

Microsoft selling computers on its own platform to customer in India (Customers in India includes customers resident in India or customers using IP address in India)

Sale consideration of Rs. 100 received by Microsoft would be liable for EL @ 2% and income therefrom will be exempt u/s. 10(50) of ITA.

Case Study 2

Microsoft selling software to customers in India (Customers in India includes customers resident in India or customers using IP address in India)

Sale consideration of Rs. 100 received by Microsoft would be liable for EL @ 2% and income therefrom will be exempt u/s. 10(50) of ITA.

Case Study 3

Airbnb (Non resident) selling hotels to customers in India (Customers in India includes customers resident in India or customers using IP address in India)

Airbnb (NR) providing hotel services and listed hotels on a E – commerce platform. E- Commerce operator received a total consideration of  Rs. 100 out which Rs. 30 was facilitation fee which was retained by E – commerce operator and balance Rs. 70 was given to Airbnb

Whether EL is to be paid on Rs. 70 or Rs. 100?

Refer Supra [Point IV]

Sale consideration of Rs. 100 received by Ecommerce operator would be liable for EL @ 2% and income therefrom will be exempt u/s. 10(50) of ITA.

Important point

In case the customer who booked hotel is directly making payment to hotel, then in that case E – commerce operator will collect the commission portion from hotels for the booking made through their platform. The E – commerce operator is required to pay EL only on the commission portion received from hotels.

Applicability of S. 194-O

Section 194-O will apply independently i.e. E – commerce operator will deduct TDS @ 1% u/s. 194-O while making payment to E – commerce participant (i.e. Airbnb).

Case Study 4

Similarly, as discussed in Case Study 3 (NR is selling services) if any NR is selling goods online to specified customers then also E – commerce operator is liable to pay EL similarly as discussed in above case.

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Location: New Delhi, IN
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October 2020