There has been significant expansion of Information and Communication Technology. With increase of E-commerce and newer concepts like cloud computing, the significance of Digital Economy in global market has increased manifold times.
Indian Income Tax Act majorly focused on the physical presence of enterprises for taxing them however Big Giants of Digital Space neither have permanent establishment nor do they receive their consideration in India as a result of which they don’t have to pay any tax in India till now.
On the basis of recommendation of Organisation for Economic Corporation and Development (OEDC) India, vide Budget 2016, has come up with the concept of Equalisation Levy to put an end to the free run for such multinational digital enterprises and to put them then in Tax Bracket. This taxation scheme has already been adopted by many countries like United Kingdom has levied Diverted Profit Tax, Australia has imposed Multinational Anti Avoidance Law, Italy has imposed Digital Tax.
Equalization Levy was introduced in India in 2016, with the intention of taxing the specified service* i.e. the income accruing to foreign companies from India. It is aimed at taxing business to business transactions.
*Specified Services includes
Equalisation Levy is just like TDS, and it is to withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy:
The rate of tax was 6% on specified services as introduced in Budget 2016. However, The Finance Act 2020 made an addition to the Finance Act 2016, by introducing a new Equalisation Levy at 2% (Also Known as Equalisation Levy 2.0)
-Equalisation Levy 2.0
The 2 per cent Equalisation Levy was introduced in the 2020-21 Budget and has come into effect from April 1, 2020. The deadline for payment of first installment of tax for April-June is July 7. The tax would be levied on consideration received by e-commerce operators from online supply of goods or services.
The levy does not apply in the following cases:
1. E-commerce operator has a Permanent Establishment in India and the e-commerce supplies or services are effectively connected with such Permanent Establishment
2. Transactions covered by the Equalisation Levy under Finance Act 2016;
3. Where sales, turnover or gross receipts from e-commerce supplies or services is less than INR 20 million during the relevant tax year.
5. Consequences of Delayed Payments
The compliance procedure for the Equalisation Levy is the responsibility of the service recipient.
a) Penalty for failure of payment
|Equalisation Levy not deducted||Amount equals to levy failed to be deducted|
|Equalisation Levy deducted but not deposited||INR 1,000/day subject to the maximum of the levy failed to be deducted|
b) Penalty for failure of filing statement of compliance
6. What is the fuss about?
This article is co-authored by CS Sakshi Soni, Kolkata. She is a practicing CS with over 3 years of practical experience in the field of corporate law, finance, governance and strategy