Logic for the introduction of Equalisation Levy

In India an assessee is taxed if that assessee has permanent establishment in India. If the assessee does not have a permanent establishment in India then he would not be taxable in India. Many companies provide digital services to resident of India without being having a permanent establishment in India therefore the digital services provided by them are not taxable in India and this practice by foreign companies have major impact on government revenue.

In order to plug in this practice and to give effect to one of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan (Action Plan 1) the government of India has introduced the concept of Equalisation Levy vide Finance Act 2016

Services Covered under Equalisation Levy

1. An online advertisment

2. Any provision for digital advertising space or any other facility for the purpose of online advertisment (Point 1 and 2 are collectively known as Specified Services)

3. 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  or

(iii) to a person who buys such goods or services or both using internet protocol address located in India

Specified Circumstances in sub point 2 above means-

(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.

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

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  (i), (ii) or (iii)

The 3rd point above is introduced by Finance Act 2020

Rates of Equalisation Levy

Specified services (Covered in point 1 and 2 above) shall be taxed @ 6% and service provided by e-commerce operator (covered in point 3) shall be taxed @ 2%

Non-Applicability of Equalisation Levy

1. If the provider of service has a permanent establishment in India and service provided is effectively connected with such permanent establishment

2. Where the aggregate amount of  consideration for specified service during the previous year is less than 1 Lakh Rupees

3. Where the payment for the specified service by the person resident in India or the permanent establishment in India is not for the purposes of carrying out business or profession.

4. The 3rd point above shall not be applicable if equalisation levy is leviable  as specified service

5. The 3rd point above shall not be applicable if 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 is less than two crore rupees during the previous year

Payment for Equalisation Levy

a) For Specified Service:

Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India shall deduct the equalisation levy from the amount paid or payable to a non resident in respect of the specified service

The equalisation levy so deducted on specified service during any calendar month shall be paid by every assessee to the credit of the Central Government by the seventh day of the month immediately following the said calendar month.

b) For Service provided by e-commerce operator

The equalization levy is to be paid by the non-resident e-commerce operator quarterly within the following due dates:

Date of ending of the quarter Due date
30 June 7 July
30 September 7 October
31 December 7 January
31 March 31 March

Author Bio

Qualification: CA in Job / Business
Company: N/A
Location: New Delhi, IN
Member Since: 25 Jan 2020 | Total Posts: 4

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3 Comments

  1. shubhambhalla310 says:

    First of all, it was not copied from any books of CA Final. But if you have doubts can u please tell me from which books are you referring to

  2. Ramkumar556 says:

    Useless article, just copied from the CA Final renowned teachers books, its not written by self. Copyright issue must be made on this person.

    1. shubhambhalla310 says:

      It was not copied from any CA Final books. Can you please tell which CA Final book you are talking about. And another thing this article incorporate amendment of Finance Act 2020 and same would be applicabe for 2021 exams and as far as I know no faculty will publish his books 1 Year before the exams

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