Equalization levy and amendments in Finance Act 2020
Section 163 to 172 deals with Equalisation levy definition, interest, penalty, filing of the annual statement, the penalty for failure to furnish statements.
Challan no 285 is used to deposit Equalisation levy.
Form -1 on income tax site is to be filed on or before 30th June for the financial year.
After the amendment made through Finance Act 2020, equalisation levy shall be applicable to two types of transactions w.e.f 1st April 2020:
1. Section 165 of Finance Act 2016 introduced Equalisation Levy to be charged at the rate of 6% from the consideration paid or payable to a non-resident person for the online advertisement services and other related services such as provisioning of digital space;
2. The scope of equalisation levy is extended to all sales, gross receipts or turnover of non-resident not having PE, who is providing the online sale of goods or provision of services or both to a person resident in India or a non-resident in specific circumstances such as the sale of advertisement targeted to Indian market or sale of data collected from India market.
E-commerce operator means a non-resident that owns, operates or manages a digital or electronic facility or platform for the online sale of goods or the online provisions of services.
It mandates equalisation levy @ 2% on the sum received or receivable by an e-commerce operator from e-commerce supply of goods or services made or provided or facilitated to-
1. A person resident in India; or
2. A person who buys such goods or services or both using internet protocols located address in India; or
3. A non-resident person in the following circumstances:
(i) Sale of advertisement which targets a customer who is resident in India or a customer who accesses the advertisement through 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.
It is to be noted that in the following cases equalisation levy @ 2% shall not be levied:
1. where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in India;
2. where the equalisation levy is leviable u/s 165 of the IT act, @ 6%;
3. if the sale, turnover or gross receipts of the e-commerce operator from e-commerce supply or services made or provided or facilitated to the persons mentioned above is less than Rs. 2 crores during the previous year.
It is to be noted that unlike in the case of equalization levy governed by section 165 (@ 6%), the equalization levy @ 2% shall be paid by the e-commerce operator to the credit of central government on a quarterly basis.
This would affect online operators like Netflix, Amazon prime or any grocery apps who are based in tax Havens and currently exempt from any type of taxes in India or doesn’t have any permanent establishment in India. However, as we have seen earlier in cross border transactions, any tax levy or withholding taxes are borne by Indian service receiver, who in turn increases prices of goods or services. So, our subscription for accessing such online content is going to get expensive.
Interest on delayed payment of tax would be charged at 1 percent per month or part of the month.
Penalty for failure to furnish statements on or before 30 June: Rs 100 per day.
Impact of TDS Deduction u/195 due to Equilisation Levy:-
The provision of equalisation levy @ 2% is inserted by section 165A of Finance Act 2020 whereby it has not been mentioned anywhere that the requirement of deducting TDS u/s 195 shall not be required if the transaction is subject to equalisation levy @ 2%.
Further, the requirement of deducting TDS lies with the payer who is going to make the payment to the e-commerce operator for the services availed. However, the liability to pay equalisation levy lies with e-commerce operator itself. It is an extra charge levied on the non-resident e-commerce operator covering them to the ambit of Indian Tax Laws for this levy.
Hence, in the above view, it can be interpreted that the TDS shall continue to be deducted u/s 195 or other sections as before based upon the deduction requirements under those sections.
I would like to thank CA Tarun Bhatia for providing his inputs and co-writing the above article with me.