Considering the potential of new digital economy and the rapidly evolving nature of business operations it is found essential to address the challenges in terms of taxation of digital transactions as the typical direct tax issues relating to e-commerce are the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity and a taxing jurisdiction, the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes. In order to address these challenges, it is proposed to insert a new Chapter titled “Equalisation Levy” in the Finance Bill, to provide for an Equalisation levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.
Chapter VIII of Finance Bill, 2016 stipulates the provisions relating to Equalisation Levy.
1. Extent and Commencement:
a) Provisions relating to equalization levy (i.e. Chapter VIII of Finance Bill, 2016) extends to the whole of India except the State of Jammu and Kashmir.
b) This chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
a) “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.
b) “Equalisation levy” means the tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter.
c) “Permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.
3. Charge of/exemption from Equalisation levy:
a) a person resident in India and carrying on business or profession; or
b) a non-resident having a permanent establishment in India.
have to charge/deduct at the rate of 6% of the amount of consideration for any specified service, paid or payable to a non-resident. However, in following cases Equalisation levy shall not be charged:-
a. The non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment.
b. The aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident from a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed one lakh rupees. or
c. 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. Payment of Equalisation levy and Interest/penalty:
a) Payment of Equalisation levy deducted: The equalisation levy so deducted 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) Interest on delayed payment: In case of delayed payment assesse shall pay simple interest at the rate of 1% of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed.
c) Penalty for failure to deduct Equalisation levy: Any assesse who fail to deduct such levy shall pay in addition to pay such levy and interest, a penalty equal to the amount of equalisation levy that he failed to deduct.
d) Penalty for failure to pay Equalisation levy: Any assesse who have deducted the equalisation levy but fails to pay such levy to the credit of the Central Government in addition to pay such levy and interest, a penalty of one thousand rupees for every day during which the failure continues, so, however, that the penalty under this clause shall not exceed the amount of Equalisation levy that he failed to pay.
However, No order imposing a penalty under this Chapter shall be made unless the assessee has been given a reasonable opportunity of being heard. No penalty shall be imposable for any failure referred to in the said sections, if the assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.
5. Furnishing of statement:
a) Statement/return of Equalisation levy shall be filed annually i.e. after the end of each financial year. However, due date for furnishing the statement yet to be prescribed.
b) An assessee who has not furnished the statement within the time prescribed or having furnished a statement, notices any omission or wrong particular therein, may furnish a statement or a revised statement, as the case may be, at any time before the expiry of two years from the end of the financial year in which the specified service was provided.
c) Where any assessee fails to furnish the statement within the prescribed time, the Assessing Officer may serve a notice upon such assessee requiring him to furnish the statement.
d) After processing of such statement, an intimation shall be generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, him.
e) Where an assessee fails to furnish the statement within the time prescribed, he shall be liable to pay a penalty of one hundred rupees for each day during which the failure continues. (However, No order imposing a penalty under this Chapter shall be made unless the assessee has been given a reasonable opportunity of being heard. No penalty shall be imposable for any failure referred to in the said sections, if the assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.)
6. Punishment for false statement:
If a person makes a false statement in any verification under this Chapter or any rule made
thereunder, or delivers an account or statement, which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine.
7. In order to avoid double taxation, it is proposed to provide exemption under section 10 of the Act for any income arising from providing specified services on which equalisation levy is chargeable.
8. In order to ensure compliance with the provisions this Chapter, it is further proposed to provide that the expenses incurred by the assessee towards specified services chargeable under this Chapter shall not be allowed as deduction in case of failure of the asseseee to deduct and deposit the equalisation levy to the credit of Central government.
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