♣ Equalisation Levy (EQL) was introduced in India by way of Chapter VIII of the Finance Act, 2016.

♣ India was the first country in the world to introduce such a levy.

♣ EQL of 6% was levied on a ‘Specified service’ which means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government.

♣ Since EQL was not a part of Income-tax Act, 1961, it was not considered as a tax on income. As a result, foreign tax credit would not be available against the EQL paid, subject to the law prevalent in the country of residence of the non-resident.

♣ The responsibility to pay the EQL was on the payer of the advertisement services availed, similar to the methodology of a withholding tax.

♣ The Finance Act, 2020 has now widened the ambit of the EQL, to not just cover payments made for advertising, but also to any online sale of goods or online provision of services or their facilitation by an E-Commerce operator

Note: The amendments to the EQL are effective from 1 April 2020 that is Financial Year 2020-21.


Extent, commencement and application [Amendment to Section 163(3)]


–   Section 163(3) has now been amended to provide that the EQL would now be applicable also to “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”

–   The above amendment expands the scope of EQL to any online sale or provision of services or their facilitation.



[Introduction of Section 164(ca) and 164(cb)]


[Amendment to Section 164(d)]


–   2 new clauses have been inserted in section 164 which define “e-commerce operator” and “e-commerce supply or services”

–  Section 164(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

–  Section 164(cb): “e-commerce supply or services” means —

  • online sale of goods owned by the e-commerce operator; or
  • online provision of services provided by the e-commerce operator; or
  • online sale of goods or provision of services or both, facilitated by the e-commerce operator; or o  any combination of activities listed in clause (i), (ii) or clause (iii);

–   Further, in section 164(d), after the words “specified service”, the words “or e-commerce supply or services” shall be inserted.

VTPA Comments: In line with the objective to widen the ambit of EQL, the definitions have been introduced as well as the amendments to the existing sections made so as to bring to charge e-commerce activities.


Charge of equalisation levy on e-commerce supply of services

[Insertion of new Section 165A]

–  Section 165A has been introduced so as to create the charge of EQL on e-commerce supply or services.

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—

  • To a person resident in India; or
  • To a non-resident in the specified circumstances as referred to in sub-section (3); or
  • To a person who buys such goods or services or both using internet protocol address located in India.

–  It has also been provided that EQL provisions would not be applicable to persons covered under section 165 (payment for “specified services”), or those who have a Permanent Establishment (PE) in India and the e- commerce supply or services is effectively connected with such PE.

–  A threshold limit for such supply has also been prescribed, whereby, EQL would not be applicable in case the sales, turnover or gross receipts, as the case maybe, is less than INR 2 Crores in the previous year.

–  Section 165A(3) defines ‘specified circumstances’ to mean 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;


Sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India.

VTPA Comments:  –  Section 165A provides that the e-commerce supply or services or their facilitation would be chargeable to EQL. It has been further clarified that the same is separate from EQL on specified services and such would continue to be governed by the existing provisions.

–  The critical point regarding the new widened scope of EQL, is that it intends EQL to be levied on sales /services even to persons who use an IP address located in India, irrespective of their residence in India.
The Government needs to provide more clarity as to how the same is proposed to be monitored and tracked,and whether the same would have an impact on the Fundamental Right, of Right to Privacy as held in various judicial precedents and enshrined in the Article 21 of the Constitution of India.

–  Another aspect which needs to be considered is the impact of the new Data Protection Bill, 2019, as the same would have wide ramifications regarding the usage and the sale of user data, which would be the key to determine the extent of data privacy and protection laws in India.

–  The Government believes that the market is also an important contributor of economic activity and hence should be given weightage apart from the usual economic activity indicator of Functions, Assets and Risks (FAR). This has also been evidenced by the recent draft notification on Profit Attribution Rules for PE which envisages a move from the hitherto function, asset and risk (FAR) analysis to the function, asset, risk and market (FARM) analysis for determining the profits attributable to a PE.

–  However, the Government, in its over-enthusiasm to tax the digital economy and mop up significant revenue, needs to evaluate and form a system of checks and balances, so that the security and privacy of the citizens of India are safeguarded.


Collection and recovery of equalisation levy on  ecommerce supply or services   [Insertion of Section 166A] –   Section 166A provides that the EQL referred to in section 165A(1), shall be paid by every e-commerce operator to the Central Government quarterly.-   Thus, unlike the EQL on specified services, which is similar to the methodology of a withholding tax, the EQL has to be collected from the e-commerce operator and not the person to who whom the e-commerce operator renders online services or makes online sales of goods or facilitates the same.
VTPA Comments: –   The said amendment is extremely critical as the EQL, hitherto, paid by the users of the specified services, will now be paid by the e-commerce operator for the purposes of section 165A.

–   Thus, as a result of the amendment there would be two systems by which the Government would collect

  • First by the users, when they avail of the specified services
  • Secondly by the e-commerce operator, when he makes any online sale of goods or services or facilitates the same

–   This may result in confusion regarding the compliance burden and may also have an impact on the pricing of the products for the Indian customers/ users.

–   Further, the power of the Government to impose compliances and taxes on persons outside its territorial jurisdiction and the reasonableness and feasibility of the same also needs to be evaluated


Other Amendments
[Amendments to Sections 167, 168, 169, 170, 172, 173, 174, 175, 178]
–  In line with the above newly introduced EQL on online sale of goods and services on e-commerce operators, various consequent amendments have been brought about in the existing sections to align them with the new EQL provisions.-  As a result, various amendments giving effect to the new sections of EQL introduced have been made in sections 167, 168, 169, 170, 172, 173, 174, 175, 178.
Power to remove difficulties [Amendment to Section
–  The Government has amended the section to provide that it may pass any orders as required through the Official Gazette to remove any difficulty in giving effect to these provisions up to 31March 2022.


Penalty for failure to deduct or pay equalisation levy

[Insertion of sub-section 171(aa) and 171(ia), also other amendments in
Section 171]

–   The penalty sections have also been amended to provide for penalty on non-payment of any amount of EQL
as required under section 166A, to the extent of an amount equal to the EQL that he failed to pay


The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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May 2021