Equalisation levy was initially brought to impose tax on online advertisement including provision of digital advertising space on certain entities which did not have any physical presence in India but which earned revenue from Indian advertisers. The levy required every resident making payment for such services to deduct 6% equalization levy and deposit it to the Government of India. This levy came to dubbed as the ‘Google Tax’, as it aimed to indirectly tax international internet companies such as Google and Facebook, which may not have physical presence in India. Interestingly, this levy was introduced by inserting a new chapter in Finance Act 2016 and was not made a part of Income Tax Act 1961. One reason for the Indian Revenue to have adopted this route could be to get over double taxation treaty provisions entered into by India.

Equalisation Levy

The Finance Act 2020 has now been amended to impose an Equalisation Levy of 2% on consideration received by ‘e-commerce operator’ for e-commerce supply of goods or service. While the levy was initially imposed on B2B transactions, the present amendment attempts to cover even B2C transactions in its ambit. Such ‘e-commerce supply or service’ is chargeable to Equalisation levy when made to a Resident or a person who buys goods or services using IP address located in India or even a Non-resident in certain specified circumstances. Specified circumstances have been given a broad meaning so as to include sale of advertisement targeting a Resident or a customer who accesses the advertisement through IP address located in India. It also includes sale of data collected from a Resident or a person who uses IP address located in India. Thus, the extent of this levy appears to be far-reaching.

Amendment Of Act 28 of 2016-CHANGED PROVISIONS WILL GET APPLICABLE FROM 01.04.2020 AS PER FINANCE ACT 2020

Notes:

(1) Except changes incorporated into column number 4, every other provisions given in finance Act 2016 will still remain applicable.

(2) Theme Fonts in Bold with blue colour reflects new complete addition to the provisions whereas underlined words or sentences reflects change in the underlined area.

Section Topic Status Provisions
163 Applicability Existing Sec 163(3) It shall apply to consideration received or receivable for specified services provided on or after the commencement of this Chapter.
Inserted In place of word chapter, substitution made as “Chapter, and to consideration received or receivable for e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2020
Interpretation In Existing situation of Finance Act 2016, definition of “Specified services” where limited only to the extent of transactions and facilitations with regard to Online Advertisements due to which major other digital services/products like assess to the resources, data download, online tutoring with service provider like Udemy, Upwork etc. & also electronic services where been kept out of EL ambit which was defeating the main purpose of any country.
164(ca) Important Definitions-e-commerce supply or services Inserted Section 164(ca):

‘(ca) “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;

(cb) “e-commerce supply or services” means—

(i) online sale of goods owned by the e-commerce operator; or

(ii) online provision of services provided by the e-commerce operator; or

(iii) online sale of goods or provision of services or both, facilitated by the e-commerce operator; or

(iv) any combination of activities listed in clause (i), (ii) or clause (iii);‘;

Interpretation With Finance Act 2020 instead of expanding definition of “Specified services” they have added definition of “E-commerce supply or services”
164(d) Definition of Equalisation Levy Existing (d) “equalisation levy” means the tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter;
Word Inserted “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;
165 Marginal Heading Existing Charge of equalisation levy
Word Inserted Charge of equalisation levy on Specified Services
Interpretation Charge from equalisation levy is now bifurcated in two catetory: 1. From Equalisation Levy on Specified Services and (2) Equalisation Levy on e-commerce supply of services.
165A Marginal Heading Addition Charge of equalisation levy on e-commerce supply of services.
165A Charge of equalisation levy on e-commerce

supply of services

Addition 165A. (1) On and from the 1st day of April, 2020, there shall be charged an equalisation levy at the rate of two per cent. of the amount of consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated by it—

(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.

(2) The equalisation levy under sub-section (1) shall not be charged—

(i) where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment;

(ii) where the equalisation levy is leviable under section 165; or

(iii) 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 as referred to in sub-section (1) is less than two crore rupees during the previous year.

(3) For the purposes of this section, “specified circumstances” mean—

(i) 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

(ii) sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India.’;

166(1) Charge of EL on Specified Services Existing Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India (hereafter in this Chapter referred to as assessee) shall deduct the equalisation levy from the amount paid or payable to a non-resident in respect of the specified service at the rate specified in section 165, if the aggregate amount of consideration for specified service in a previous year exceeds one lakh rupees.
Replaced Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India (hereafter in this Chapter referred to as assessee) shall deduct the equalisation levy referred to in sub-section (1) of section 165 from the amount paid or payable to a non-resident in respect of the specified service at the rate specified in section 165, if the aggregate amount of consideration for specified service in a previous year exceeds one lakh rupees.
Interpretation Change in Section 165(1) for working “equalisation levy” to “equalisation levy referred to in sub-section (1) of section 165” is for separating EL on specified services from new inserted EL on E-commerce supply of services.
166 Marginal Heading Existing Collection and recovery of equalisation levy.
Addition “Collection and recovery of equalisation levy on specified services.”
166A Marginal Heading Addition Collection and recovery of equalisation levy on ecommerce supply or services.
Collection & Recovery of EL on E-Commerce Supply or Services Addition “166A. The equalisation levy referred to in sub-section (1) of section 165A, shall be paid by every e-commerce operator to the credit of the Central Government for the quarter of the financial year ending with the date specified in column (2) of the Table below by the due date specified in the corresponding entry in column (3) of the said Table:

Sr. No. Date of Ending the Quarter of FY Due Date of FY
1 30th June 7th July
2 30th September 7th October
3 31st December 7th January
4 31st March 31st March
167 (1) Furnishing of Statement Existing words “Every assessee shall” and “Specified Services”
New “Every assessee or e-commerce operator” shall be substituted and “Specified Services or E-commerce supply or Services” shall be substituted.
Interpretation Definition of assessee not been clarified in very ludic way in Finance Act 2016.

Hence with the concurrence of joint reading as per definition given in Income Tax Act, 1961 which speaks of Income tax or super tax or any sum of money payable whereas Equalisation levy is not tax on income but it is levy on transactions which is required to be withhold hence we cannot have resort to IT Act.

At the same time Finance Act 2016 is even not clear about the definition of assessee hence with interpretation and judgement drawn by me from the applicability of the Finance Act 2016, Section 165(1) (i) & (ii) i.e. (i) a person resident in India and carrying on business or profession; or (ii) a non-resident having a permanent establishment in India.

It can be reasonably interpreted that it applies to assessee consist of Resident Person as well as Non-Resident with Permanent Establishment which make us to believe that if E-commerce Operator involved in the transactions may get escaped from the EL being Non-Resident without PE in India (Section 9). Hence Indian Government introduced separate charging section for E-Commerce Operator who earlier not covered under existing provisions.

167(2) -Do- Existing Words “assessee”
Replaced “assessee or e-commerce operator” to be substituted
167(2) -Do- Existing “specified service was provided”
Replaced specified services was provided or e-commerce supply or services was made or provided or facilitated”
167(3) -Do- Replaced “assessee” substituted with “assessee or e-commerce operator”
168(1)(a) Processing of Statement Replaced “assessee” substituted with “assessee or e-commerce operator”
168(1)(b) -Do- Replaced Word used “sum deductible” shall be substituted with “sum deductible and payable”
168(1)(c) -Do- Replaced Word “assessee” substituted with “assessee or e-commerce operator
169(2), 169(3) & 169(4) Rectification of Mistake Replaced Word “assessee” substituted with assessee or e-commerce operator”
170 Interest on delayed payment of equalisation levy. Replaced Word “assessee” substituted with “assessee or e-commerce operator” & “section 166 or section 166A” to be substituted
171 Penalty for failure to  deduct or pay equalisation levy. Replaced Word “assessee” substituted with “assessee or e-commerce operator
171(aa) -Do- Addition “(aa) fails to pay the whole or any part of the equalisation levy as required under section 166A; or”;
171(b) -Do- Existing (b) having deducted the equalisation levy, fails to pay such levy to the credit of the Central Government in accordance with the provisions of sub-section (2) of that section,
-Do- Words Added (b) having deducted the “equalisation levy referred to in sub-section (1) of section 165″, fails to pay such levy to the credit of the Central Government in accordance with the provisions of sub-section (2) of that section,
171(b)(i) -Do- Existing (i) in the case referred to in clause (a), in addition to paying the levy in accordance with the provisions of sub-section (3) of that section, or interest, if any, in accordance with the provisions of section 170, a penalty equal to the amount of equalisation levy that he failed to deduct; and
171(b)(ia) -Do- Addition & Replaced (i) in the case referred to in clause (a), in addition to paying the levy in accordance with the provisions of sub-section (3) of that section, or interest, if any, in accordance with the provisions of section 170, a penalty equal to the amount of equalisation levy that he failed to deduct;

(ia) in the case referred to in clause (aa), in addition to the levy in accordance with the provisions of that section, or interest, if any, in accordance with the provisions of section 170, a penalty equal to the amount of equalisation levy that he failed to pay; and”;

172,173 Penalty for failure to furnish Statement, Penalty not to be imposed in Certain cases. Words Added Word “assessee” substituted with “assessee or e-commerce operator
174 Appeal to Commissioner of Income-tax (Appeals). Words Added Word “assessee” substituted with “assessee or e-commerce operator”
175 Appeal to Appellate Tribunal. Words Added Word “assessee” substituted with “assessee or e-commerce operator
178 Application of certain provisions of Income-tax Act. Word Added Existing:

The provisions of sections 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.

Addition:

In place of section 120, “section 119, 120” to be substituted. Section 119 deal with Amendment of section 10 to include word as “service” apart from Goods.

 

180(1) Power to remove difficulties Existing:

Provided that no such order shall be made after the expiry of a period of two years from the date on which the provisions of this Chapter come into force.

Replaced:

Provided that no such order shall be made after 31st day of March, 2022” from the date on which the provisions of this Chapter come into force.

Conclusion: Once the applicability of levy is established, next step is to analyse the mechanism of collection/recovery of the tax. As against the earlier Equalisation levy, the responsibility of depositing the tax is on the e-commerce operator (i.e. the Non-resident). While the same appears to have been done to ease the burden of payment of Resident consumers, no specific procedures appear to be in place for the requisite implementation. Further, if the e-commerce operator (non-resident/ based outside India and not having any physical presence in India) chooses not to abide by the levy itself, what powers the Indian Revenue authorities left with to recover the tax from such a person may be open to question.

Though the provisions require a levy of 2% of the consideration received, the term ‘consideration’ has not been defined. As the term ‘e-commerce supply or services’ includes both direct supply and facilitation of supply made by third-party vendors, the term ‘consideration’ may have different meanings as the transaction and resultant income varies in both cases. It is settled law that in absence of a valuation and machinery provision, the levy itself fails. Given this, it will have to be tested whether the new levy can get filtered from legal tenability.

Constant development of new business models and difficulty to put borders on digital transactions has made taxing digital activities a challenge for all countries. OECD & G20 Organization have been assigned the responsibility of bringing about a consensus-based solution. The Indian Revenue’s unilateral approach in one form or another, though aimed at securing its revenues, raises more questions than addresses answers. Apart from the above, there appear to be larger constitutional issues on the latest Equalisation levy. The coming months may unfold the next steps on Equalisation levy, whether it faces a smooth sail of revenue augmentation or rough waters of litigation.

If DTAA for the benefit of the assessee cannot be resorted to then ultimate purpose would get defeated and e-commerce operator or other assesses would find it difficult to offer their business based on source based earning models. Let us hope that these all problems would attain finality after having changed DTAA-Permanent Establishment definition with the mutual agreements of different countries across the world.

Disclaimer: The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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2 Comments

  1. GANESH LAL SINDHUPE says:

    Dear sir, I am retired PSU officer. After retirement, I have purchased one flat in Pune Rs 56 Lakh. I hade paid Rs 56 Thousand as TDS U/s 194M. Please guide me, how to get refund this amount and which ITR Form is required to file ?

    1. FCA Harshal Sevak says:

      Dear Ganeshlalji,
      As being retired PSU officer, certain information is required to be obtained before giving any suggestions for your question:
      (1) Which income/incomes you are having?
      (2) Do you have more than one house property?
      (3) Do have any capital gain during the year?
      ITR-1 Requirements:
      (a) Salary/Pension
      (b) Other sources like interest etc…
      (c) Other house property
      (d) Income less than 50L from (a+b+c)
      File ITR 1:
      ITR-2 Requirements:
      Income from:
      (a) Every Income from ITR-1>50L
      (b) Capital Gain
      (c) More than one house property
      (d) Foreign Income/Foreign Assets

      Suggestions:
      (1) In absence of information, it is presumed that you not indulge into any business and deriving income therefrom, it is recommended to file any of the above two ITRs.

      If having capital gain or two house property or income >50L or having foreign income or having foreign assets like ADR, GDR etc….you can go for ITR 2 if any of the above category condition is fulfilled otherwise for for ITR 1.
      (2) It is presumed that TDS is rightly been deducted in absence of information, You can get credit of TDS deducted just merely by filing ITR 1 or 2. Normally TDS to be deducted @5% for Section 194M whereas as per information you provided it is almost 1%…but I am not getting into validity of deducting TDS here.

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