We have developed ourselves during 21st century much more than previous decades. We have become tech savvy and dependent on internet for fulfilling majority of our necessities. The emergence of e-commerce companies has dissolved national boundaries. We are fulfilling our daily needs on these companies.
Many MNCs and other companies are conducting business in digital domain, which dissolved national boundaries and brought consumers of all over world on single platform.
DEFINATIONS: Section 164 of the Income Tax Act, 1961 defines
(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;
(cb) “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 clause (i), (ii) or clause (iii);]
(d) “equalisation levy” means the tax leviable on consideration received or receivable for any specified service [or e-commerce supply or services] under the provisions of this Chapter;
(g) “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;
(i) “specified service” 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 in this behalf;
Equalization levy or commonly called as ‘Google Tax’ was brought by Sh. Arun Jaitley in the year 2016 as part of Implementation of OECD (Organization for Economic Cooperation and Development) action plan (BEPS Action Plan)
Base erosion and profit shifting (BEPS) refers to tax planning that exploits gaps and mismatches in the tax rules to make profits disappear for tax purposes or to shift profits to the location where there is no or very little real activity so that there are little or no real corporate taxes paid.
In this backdrop, OECD published a report on ‘Addressing Base Erosion and Profit shifting”. The OECD followed it by publishing a draft action plan in July 2013 which finalized in October 2015. The BEPS action plan identifies 15 action plans to address BEPS comprehensively and also sets a deadline to implement those.
As we know that taxability of a person in India is depend on his/her residential status. A company assessee is taxed in India on satisfying either of two conditions;
If a company incorporated outside India and having POEM outside India, would be considered as non-resident and taxation of Non-residents are governed by provisions of Section 5 and 9 of the Income Tax Act, 1961 read with DTAA. According to provisions of DTAA a business profit can be taxed only if there exists a business connection or a PE of the Company in India.
We know that digital domain businesses are occurring in cyberspace, without having any PE in India. Due to e-commerce business a Digital Economy has emerged during this decade. Since there is an element of intangibility attached to the digital mode of business, tax authorities are facing various challenges in bringing to tax in profit earned from a digital business.
To address this concern BEPS action plan was developed by OECD, which outlines the methods and principles based on which the physical and the digital economies can be taxed at par.
CENTRAL BOARD OF DIRECT TAXES has issued a notification dated 27th May 2016 stating that provision of chapter VIII relating to equalization levy would come into effect from 01st June 2016. The chapter extends to the whole of India except Jammu and Kashmir. It applies in respect of consideration received or receivable for specified services provided on or after 01.06.2016.
Following are key aspects related to equalization levy:
1) Charge of Equalization Levy: is levied on the amount of consideration for any “specified service” received/ receivable by a non-resident from resident carrying business or profession or by non-resident having a permanent establishment in India
Specified Service has been defined in sec 164 of the Finance Act 2016 and means the following:
a) online advertisement
b) Provision for Digital Advertising or any other service of facility for online advertisement
c) Any other services as may be notified by Govt
3) Equalization levy rate: shall be levied at the rate of 6% on the consideration received for above mentioned specified services received or receivable by a non-resident from a resident or from a non-resident having PE in other contracting states.
4) Equalization shall not be levied: on below mentioned transactions
a) Non-Resident providing such specified services has a PE in India and the specified service is effectively connected with such PE
b) aggregate amount of consideration received or receivable in a previous year by a non-resident from a resident or from a non-resident having PE in India does not exceed Rs. 1 lakh.
c) Purpose of payment for specified service by a person resident in India or PE in India is not for carrying on business or profession.
5) The time period for remittance of the Equalization Levy: The equalization levy deducted during any calendar month shall be paid by the assessee to the credit of Central Government by 7th of next month.
6) Furnishing of Statement: payer is responsible for deduction of equilisation levy, shall furnish a statement electronically in Form 1 in respect of all specified services entered into during financial year. Such statement shall be furnished on or before 30th June immediately following the financial year.
7) Processing of Statement: the provisions have been made for processing of the value of specified services and equalisation levy payable or refundable on the basis of such processing. The provisions also provide computation mechanism. It is also provided that no intimation shall be made after 1-year expiry of relevant financial year.
8) Interest payable: simple interest @1% for every month (or part of the) month shall be payable, where the equalisation levy collected is not credited to the account of Central Government within due date.
|Different situations||Penalty (in addition to equalisation levy and interest)|
|Failure to deduct equalisation levy (wholly or partly)||A penalty equal to amount of equalisation levy|
|Failure to deposit equalisation levy with Central Government||Rs. 1000 for every day of default (not to exceed amount of equalisation levy)|
|Failure to furnish statement||Rs. 100 for each day of default.|
Penalty shall not be levied, if assessee proves that the delay was due to some reasonable cause.
EQUILISATION DUTY ON E-COMMERCE OPERATORS INTRODUCED BY FINANCE ACT, 2020
1) W.e.f. 01-04-2020, equalization levy would be levied on the following two transactions namely:
a) Amount received or receivable by a Non-Residents for the online advertisement services rendered to a specified person;
b) Amount received or receivable by an e-commerce operator from e-commerce supply of goods or services to specified persons.
2) The equalization levy shall be charged at the rate of 2% from the consideration received or receivable by an e-commerce operator from e-commerce supply of goods or services made or provided or facilitated by it to the following persons:
a) Resident of India
b) A person buying goods or services or both using IP address located in India
c) 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 IP address located in India; and
ii) Sale of data collected from a person who is resident in India or from a person who uses IP address located in India
3) E-commerce supply or services means:
a) Online sale of goods owned by the e-commerce operator;
b) Online provision of services provided by the e-commerce operator;
c) Online sale of goods or provision of services or both facilitated by the e-commerce operator; or
d) Any combination of above activities
4) Equalization Levy on e-commerce operator shall not be levied in the following cases:
a) Where E-commerce operator has a PE in India and the service is effectively connected with such PE;
b) Equalization levy shall not be charged if the sale, turnover or gross receipts of the ecommerce 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;
c) Equalization levy is leviable under section 165 i.e. existing provisions of Online advertisement. Sec 165 and sec 165A are mutually exclusive.
5) Equalization levy to be paid by E-commerce operators on Quarterly basis by 7th of the month following end of Quarter. Other existing provisions of equalization levy on the online advertisement shall apply mutatis mutandis to this equalization levy on e-commerce operators.
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