Introduction: Equalisation Levy, introduced by the Indian government, aims to tax specific digital services provided by non-resident e-commerce operators. It ensures taxation in India for income derived from digital services.
Applicability of Equalisation Levy:
Equalisation Levy is governed by Section 165 and Section 165A of the Finance Act, 2016, not the Income Tax Act, 1961.
Section 165: Equalization levy at the rate of 6% becomes applicable when payments for specified services, are received or receivable by a NR from:
1. a person resident in India carrying on business or profession, or
2. an NR having a PE in India.
Section 165A: On or after April 1, 2020, an Equalization Levy at the rate of 2% becomes applicable on the consideration received or receivable by an e-commerce operator from the e-commerce supply of services. This applies:
1. to a person resident in India; or
2. to a Non-Resident (NR) in the Specified Circumstances; or
3. to a person who purchases such goods or services or both using an IP address located in India.
Specified Services:
1. Online Advertisement
2. Provision of digital advertisement space for online advertising.
Permanent Establishment (PE):
- PE includes a fixed place of business like a Place of Management, Branch, Office, Factory, Workshop, etc.
Specified Circumstances:
- Sale of advertisement targeting a customer residing in India or accessing the advertisement through an IP address located in India; and
- Sale of data collected from a person residing in India or using an IP address located in India.
Consideration received or receivable from e-commerce supply or services shall encompass:
- Consideration for the sale of goods, regardless of whether the e-commerce operator owns the goods. However, it should not include consideration for the sale of such goods owned by a person resident in India or by a PE in India of a NR, if the sale of such goods is effectively connected with such PE.
- Consideration for the provision of services, irrespective of whether the service is provided or facilitated by the e-commerce operator. Nevertheless, it shall not include consideration for the provision of services provided by a person resident in India or by a PE in India of an NR, if the provision of such services is effectively connected with such PE.
Non-Applicability of Equalisation Levy:
1. Section 165: If NR has PE in India and services are connected with that PE, or if aggregate payments from the payer are up to INR 1 lakh.
2. Section 165A: If the e-commerce operator has a PE in India, the equalization levy under Section 165 is applicable, or if sales turnover is less than INR 2 Crore during the previous year.
Time Limit for Deposit [Section 166 & 166A of Finance Act, 2016]: Equalisation Levy must be deposited by the 7th of the next month for Section 165 and as per the specified schedule for Section 165A.
| Date of ending of the quarter of F.Y | Due Date |
| 30th June | 7th July |
| 30th September | 7th October |
| 31st December | 7th January |
| 31st March | 31st March |
Return Filing [Section 167 of Finance Act, 2016]:
As per section 167, the return must be filed in FORM NO. 1 on or before the 30th of June immediately following the financial year. For belated or revised returns, they should be furnished within two years from the end of the financial year in which the specified service, e-commerce supply, or service was provided or facilitated.
Notice Issuance by AO: In case the Assessing Officer (AO) issues notices, the assessee is required to file the return within 30 days from the date of serving of such notice.
Consequences of Failure [Section 171 of Finance Act, 2016]:
(a) Failure to Deduct Equalization Levy (Section 166): Failure to deduct the whole or any part of equalisation levy as per section 166.
(aa) Failure to Pay Equalization Levy (Section 166A): Failure to pay the whole or any part of equalisation levy as per section 166A.
(b) Failure to Pay Equalization Levy to Central Government (Section 165): Having deducted equalisation levy as per section 165, failing to pay the same to the Central Government in accordance with the provisions.
Penalty Clause wise:
For Clause (a): Liability: Equalization Levy + Interest (if any) as per section 170 + Penalty equal to the levy that was not deducted.
For Clause (aa): Liability: Equalization Levy + Interest (if any) as per section 170 + Penalty equal to the levy that was not paid.
For Clause (b): Liability: Equalization Levy + Interest (if any) as per section 170 + Penalty of INR 1,000/- until the failure continues. However, the penalty shall not exceed the levy amount that was not paid.
Penalty for Late Filing [Section 172 of Finance Act, 2016]: A penalty of INR 100 per day applies for late filing, unless reasonable causes are established.
Non-Compliance [section 40(a)(ib) of Income Tax Act, 1961]: Failure to comply with equalisation levy provisions can lead to disallowance of expenses paid to non-residents for which the levy is deductible, impacting the current assessment year. However, if paid or deducted in subsequent years, deduction can be availed.
For detailed information, refer to the relevant sections of the Finance Act, 2016.
Conclusion: Navigating the landscape of Equalisation Levy demands a nuanced understanding of its provisions and timelines. As outlined in the Finance Act, 2016, compliance is crucial to avoid penalties and ensure seamless operations. From the applicability criteria to the consequences of non-compliance, CS Piyush Goyal sheds light on the intricate details. For further clarification and assistance, reach out to CS Piyush Goyal & Associates, ensuring expertise in managing complexities related to Equalisation Levy and other company secretarial matters.
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