Equalization Levy

Background of Equalization Levy:-

  • Equalization Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India. It is aimed at taxing business to business transactions.
  • To bring in clarity in this regard, the government introduced vide Budget 2016, the equalization levy to give effect to one of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan.

Application of Equalization Levy {Sec.163 of I.T Act, 1961}:-

1) Extends to the whole of India except the State of Jammu and Kashmir.

2) It shall apply to consideration received or receivable for specified services provided on or after the commencement of this Chapter [and to consideration received or receivable for e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2020.].

Charge of Equalization levy on specified services {Sec.165 of I.T Act, 1961}:-

1) On and from the date of commencement of this Chapter, there shall be charged an Equalization levy at the rate of 6% of the amount of consideration for any specified service[i] received or receivable by a person, being a non-resident from:

i. A person resident in India and carrying on business or profession; or

ii. A Non-resident having a permanent establishment in India.

2) The Equalization levy under sub-section (1) shall not be charged, where:

i. Non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment;

ii. 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 is <= Rs.100000/-; or

iii. 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.

Example:

Rohan has advertised on Google to expand his business. He has to pay Rs. 200000/- in FY 2018-19 to Google for the advertising services availed.

Solution:

Google will bill Rohan for an amount of Rs. 212766/-

Rohan will deduct TDS at the rate of 6% of Rs. 212766 = Rs. 12766/- and pay the balance of Rs. 200000/- (Rs. 212766 – Rs. 12766) to Google.

Charge of Equalization levy on e-commerce supply of services {Sec.165A of I.T Act, 1961}:-

1) On and from the 1st day of April, 2020, there shall be charged an equalization levy at the rate of 2% of the amount of consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated by it:

i. To a person resident in India; or

ii. To a non-resident in the specified circumstances as referred to in sub-section (3); or

iii. To a person who buys such goods or services or both using internet protocol address located in India.

2) The equalization levy under sub-section (1) shall not be charged:

i. where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment;

ii. where the equalization levy is leviable under section 165; or

iii. Sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated as referred to in sub-section (1) is <= 2 Crore Rupees during the previous year.

3) For the purposes of this section, “specified circumstances” mean:

i. Sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement though 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.

Collection and recovery of Equalization levy on specified services {Sec.166 of I.T Act, 1961}:-

1) Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India (here in this Chapter referred to as assesse) shall deduct the [equalization levy referred to in sub-section (1) of section 165] from the amount paid or payable to a non-resident in respect of the specified service at the rate specified in section 165, if the aggregate amount of consideration for specified service in a previous year >Rs.100000/-.

2) Equalization levy so deducted during any calendar month in accordance with the provisions of sub-section (1) shall be paid by every assesse to the credit of the Central Government by the 7th day of the month immediately following the said calendar month.

3) Any assesse who fails to deduct the levy in accordance with the provisions of sub-section (1) shall, notwithstanding such failure, be liable to pay the levy to the credit of the Central Government in accordance with the provisions of sub-section (2).

Collection and recovery of Equalization levy on E-commerce supply or services {Sec.166A of I.T Act, 1961}:-

1) Levy referred to in section 165A (1), shall be paid by every e-commerce operator to the credit of the Central Government for the quarter of the financial year:

S.No Date of ending of the quarter of Financial Due date of the Financial Year
1 30th June 7th July
2 30th September 7th October
3 31st December 7th January
4 31st March 31st March

Furnishing of statement {Sec.167 of I.T Act, 1961}:-

1) Every [assesse or e-commerce operator] shall, within the prescribed time after the end of each financial year, prepare and deliver or cause to be delivered to the Assessing Officer or to any other authority or agency authorized by the Board in this behalf, a statement in such form, verified in such manner and setting forth such particulars as may be prescribed, in respect of all [specified services or e-commerce supply or services, as the case may be,] during such financial year.

2) An [assesse or e-commerce operator] who has not furnished the statement within the time prescribed under sub-section (1) or having furnished a statement under sub-section (1), 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 services was provided or e-commerce supply or services was made or provided or facilitated].

3) Where any [assesse or e-commerce operator] fails to furnish the statement under sub-section (1) within the prescribed time, the Assessing Officer may serve a notice upon such [assesse or e-commerce operator] requiring him to furnish the statement in the prescribed form, verified in the prescribed manner and setting forth such particulars, within such time, as may be prescribed.

Processing of statement {Sec.168 of I.T Act, 1961}:-

1) Where a statement has been made under section 167 by the [assesse or e-commerce operator], such statement shall be processed in the following manner, namely:

i. the equalization levy shall be computed after making the adjustment for any arithmetical error in the statement;

ii. the interest, if any shall be computed on the basis of [sum deductible or payable, as the case may be,] as computed in the statement;

iii. the sum payable by, or the amount of refund due to, the [assesse or e-commerce operator] shall be determined after adjustment of the amount computed under clause (b) against any amount paid under sub-section (2) of [section 166 or section 166A] or section 170 and any amount paid otherwise by way of tax or interest;

iv. an intimation shall be prepared or generated and sent to the [assesse or e-commerce operator] specifying the sum determined to be payable by, or the amount of refund due to, him under clause (c); and

v. the amount of refund due to the [assesse or e-commerce operator] in pursuance of the determination under clause (c) shall be granted to him:

Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the [statement or revised statement] is furnished.

2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralized processing of such statements to expeditiously determine the tax payable by, or the refund due to, the [assesse or e-commerce operator] as required under that sub-section.

Rectification of mistake {Sec.169 of I.T Act, 1961}:-

1) With a view to rectifying any mistake apparent from the record, the Assessing Officer may amend any intimation issued under section 168, within one year from the end of the financial year in which the intimation sought to be amended was issued.

2) The Assessing Officer may make an amendment to any intimation under sub-section (1), either suo motu or on any mistake brought to his notice by the [assesse or e-commerce operator].

3) An amendment to any intimation, which has the effect of increasing the liability of the [assesse or e-commerce operator] or reducing a refund, shall not be made under this section unless the Assessing Officer has given notice to the [assesse or e-commerce operator] of his intention so to do and has given the [assesse or e-commerce operator] a reasonable opportunity of being heard.

4) Where any such amendment to any intimation has the effect of enhancing the sum payable or reducing the refund already made, the Assessing Officer shall make an order specifying the sum payable by the [assesse or e-commerce operator] and the provisions of this Chapter shall apply accordingly.

Interest on delayed payment of equalization levy {Sec.170 of I.T Act, 1961}:-

1) Every [assesse or e-commerce operator], who fails to credit the equalization levy or any part thereof as required under [section 166 or section 166A] to the account of the Central Government within the period specified in that section, shall pay simple interest at the rate of one per cent of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed. 

Penalty for failure to deduct or pay equalization levy {Sec.171 of I.T Act, 1961}:-

1. Any [assesse or e-commerce operator] who:

a. Fails to deduct the whole or any part of the equalization levy as required under section 166; or

aa. Fails to pay the whole or any part of the equalization levy as required under section 166A; or]

b. having deducted the [equalization levy referred to in sub-section (1) of section 165], fails to pay such levy to the credit of the Central Government in accordance with the provisions of sub-section (2) of that section,

Shall be liable to pay:-

i. In the case referred to in clause (a), in addition to paying the levy in accordance with the provisions of sub-section (3) of that section, or interest, if any, in accordance with the provisions of section 170, a penalty equal to the amount of equalization levy that he failed to deduct;

ii. in the case referred to in clause (aa), in addition to the levy in accordance with the provisions of that section, or interest, if any, in accordance with the provisions of section 170, a penalty equal to the amount of equalization levy that he failed to pay; and

iii. in the case referred to in clause (b), in addition to paying the levy in accordance with the provisions of sub-section (2) of that section and interest in accordance with the provisions of section 170, 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 equalization levy that he failed to pay.

Penalty for failure to furnish statement {Sec.172 of I.T Act, 1961}:-

1) Where an [assesse or e-commerce operator] fails to furnish the statement within the time prescribed under sub-section (1) or sub-section (3) of section 167, he shall be liable to pay a penalty of one hundred rupees for each day during which the failure continues.

Penalty not to be imposed in certain cases {Sec.173 of I.T Act, 1961}:-

i) Notwithstanding anything contained in section 171 or section 172, no penalty shall be imposable for any failure referred to in the said sections, if the [assesse or e-commerce operator] proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.

ii) No order imposing a penalty under this Chapter shall be made unless the [assesse or e-commerce operator] has been given a reasonable opportunity of being heard.

[i] I) Online advertisement:

II) Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;

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