With the expansion of information and communication technology influencing the modes and scales of supply and procurement of goods and services exponentially, the digital economy has enabled conducting of businesses without regard to national boundaries and physical presence.  The same has also resulted in novel issues in the tax regime regarding taxability of revenue from such digital transactions.

Given the same, while the OECD has been trying to address the issue (BEPS Action Plan 1), it has not been able to reach a consensus with the member countries on the mode of taxing such transactions.  In light of the above, among various other nations, India was the first country to introduce a charge on digital transactions in the year 2016, vide Finance Act, 2016, in the form of an equalization levy on transactions in the nature of online advertisements, any provision for digital advertising space or any other facility or service for the purpose of online advertisement [New Chapter VIII introduced in the Finance Act, 2016].

The charge has now been further expanded by bringing under the ambit of equalization levy transactions in the nature e-commerce supply or services i.e. e-commerce operators enabling digital supply of goods and services vide Finance Act, 2020, thus covering businesses such as e-commerce marketplaces, online content creators, any business operator without a presence in India engaged in selling or enabling sale of goods or services to Indian customers, online market places, international tours and travels, hospitality, etc..

It is also important to note that the new amendment would cover a wider range of non-resident assessees under its ambit and is a lot wider in its applicability to types of transactions as compared to the existing provisions. In this regard, tabulated below are the differences between the existing and the newly added provisions:

Element of discussion Existing Provisions Newly introduced provisions
Applicability From the date of applicability of the new Chapter VIII (1st June 2016) 1 April 2020 i.e. FY 2020-21
Nature of transactions covered Online advertisements, any provision for digital advertising space or any other facility or service for the purpose of online advertisement Online sale of goods or provision of services or both
Charge On the consideration received or receivable by any non-resident from a resident carrying on business or profession in India or a non-resident having a Permanent Establishment in India On the consideration received or receivable by any non-resident from a resident in India or a non-resident in specified circumstances[1] or a buyer of goods or services or both under IP address located in India
Exceptions to charge[2]
  • Where the consideration is less than INR 1 lakh;
  • Where the transaction is undertaken by the payer not for the purpose of business or profession
  • Where the transaction is effectively connected to a PE in India of the services provider
  • Where the transaction is covered under the existing provisions;
  • Where the transaction is effectively connected to a PE in India of the services provided;
  • Turnover of the e-commerce operator is less than INR 2 crore
Rate of levy 6 percent 2 percent
Collection and recovery Person receiving the services to deduct the levy from the consideration payable to the service provider and deposit the same to the credit of the Central Government[3] The e-commerce operator, undertaking the sale of goods or services or both, to deposit on his own account the levy to the credit of the Central Government[4].
Due date to deposit 7th of the month following the month in which the payment was made and such levy deducted from the same Quarterly basis – 7th of the month following each quarter beginning April and 31st March for the quarter ending on 31st March

The following are certain common points relating to both the provisions:

Furnishing of a statement in relation to the levy:

  • An annual statement is required to be furnished in the prescribed form (belated or revised statement can be furnished before expiry of 2 years from end of the year of transaction).
  • An intimation regarding processing of the statement and resultant demand or refund would also be sent to the assessees (not beyond a period of one year from the end of the year in which the statement is furnished).
  • The statement furnished is also rectifiable suo-moto by the officer or upon a request made by the assessee.
  • A penalty of INR 100 per day would be charged for each day of delay in furnishing the statement.

Interest on delayed payment, penalty and appellate proceedings:

  • Interest at the rate of 1 percent per month or part of a month would be charged on account of a delayed deposit.
  • Penalty is chargeable as follows:

– Failure to deduct: Sum equal to the amount of levy;­­­­­

– Failure to pay: Sum equal to the amount of levy;

– Failure to pay after deduction: INR 1,000 per day of failure subject to a maximum sum being the amount of original levy.

  • Penalty would not be levied where there exists reasonable cause and a reasonable opportunity of being heard would also be provide to an assessee before any levy of penalty.
  • ­­­Appeals against any order/ intimation received can be filed as per the procedure prescribed under the provisions of the Income-tax Act, 1961­.
  • Any false information/ statement as part of any verification under this chapter shall result in imprisonment up to 3 years with fine (non-cognizable). Further, no prosecution can be instituted for such a false statement except with the section of the Chief Commissioner of Income-tax

Other important considerations

  • Such a levy may result in taxation of a transaction between two non-residents as well;
  • Further, there is no clarity on availing credit of such a levy by the non-resident as the same does not fall under the provisions of the Income-tax Act, 1961 and also stays out of the purview of tax treaties;
  • There exists ambiguity on various questions as to what would tantamount to e-commerce supply or services (whether a sale through mail correspondences or over a call would be covered under these provisions) and what would fall under the term consideration received or receivable;
  • Is it the intention to charge the entire transaction value received by the e-commerce operator or merely the income of e-commerce operators;
  • Income of the e-commerce operators are exempt from income-tax as per section 10(50) of the Income-tax Act, 1961. However, the same is available only from 1 April 2021 whereas the provisions of equalization levy are effective from 1 April 2020. Thus, there exits certain ambiguity in the periods as well.

Given the above, various business affected by the said provisions have recently made representations to the Government on such issues and the Government’s response to the same is awaited.

Notes: 

[1] a) Sale of advertisement targeting a customer resident in India or a customer accessing the advertisement through an IP address located in India;

b) Sale of data, collected from a person resident in India or using an IP address located in India.

[2] While the existing provisions are merely applicable to B2B transaction beyond a specified value, there are no such exceptions in the new provisions. Thus, equalization levy as per the new provisions would be applicable on the e-commerce supply or services to customers/ consumers as well i.e. B2C at any value

[3] Where the person fails to deduct such levy from the consideration, it will be his liability to anyway deposit the same to the credit of the Central Government.

[4] The e-commerce operator, while making payment to a resident e-commerce participant, may also be required to deduct tax at source at the rate of 1 percent on the value of consideration payable to the participant as per the provisions of Section 194-O of the Income-tax Act, 1961 w.e.f. 1 October 2020.

Author Bio

Qualification: CA in Practice
Company: Pooja Haran & Associates
Location: Chennai, Tamil Nadu, IN
Member Since: 05 Feb 2020 | Total Posts: 1

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