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There was a great need of the time following the era of digitalisation in India during the last decade, as use of smart phones have increased to a significant extent, which in turn have rapidly increased the promotional and advertising activities through digital modes like various business and corporate houses, start-ups in India hasstarted promoting their products and services digitally through facebook, instagram, you tube and various other applications, the server of which are located outside India. The biggest challenge before the Income tax authorities was that they cannot tax such income as business was conducted without regard to national boundaries and may dissolve the link between an income producing activity and a specific location. In digital Domain the business doesn’t occur in any physical location but instead takes place in cyberspace due to which it becomes difficult to determine the taxability of Income.

To overcome this situation and to protect the interest of revenue the Central Government of India has introduced the concept of Equalization levy Scheme vide VIII Chapter in the Finance Act, 2016 with effect from 1st June 2016 to whole of India except Jammu and Kashmir. The Idea of this levy was taken from BEPS Action plan 1, which provides 3 recommendations out of which India has implemented 2 recommendations i.e. equalization levy and significant economic presence concept.

But what actually equalization levy means and to whom it is applicable, lets understand more analytically through the wordings of bare text;

Meaning of Equalization levy: Equalization Levy means the tax leviable on consideration received or receivable for any specifies service.

What is specified service?

i). Online Advertisement;

ii). Any provision for digital advertising space or any other facility or service for the purpose of online advertisement or any other service as may be notified by the central government in near future.

Charge of levy (Section 165 of Finance Act, 2016 is the charging section)

Equalization levy is levied at the rate of 6% on the amount of consideration for specified service (as mentioned above) received or receivable by a person, being non-resident from-

(a) A person resident in India and carrying on business or profession or

(b) A non-resident having a PE in India.

Equalization levy is not chargeable, where-

(a) The non-resident providing the specified service has a PE in India and the specified service is effectively connected with such PE;

(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 PE in India, does not exceed INR 1 lakh or

(c) Where the payment for the specified service by the person resident in India or the PE in India is not for the purposes of carrying out business or profession.

Conclusion: The introduction of such tax regime proves to be boon for the Indian Economy as it helps in increasing the tax revenue of the nation and to have a check and control over the payments made to such E-commerce companies which are not having PE or place of business in India.

Author Bio

CA. Pushp Kumar Sahu is a Practicing Associate member of Institute of Chartered Accountants of India, LLB, B. Com, has significant experience in the field of Direct Taxation and International Taxation, dealt with numerous numbers of Assessment, Search & Seizure, Survey Cases. His core area of pr View Full Profile

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May 2024