Understanding Equalisation Levy: Online Advertising & E-commerce

The Equalisation Levy, introduced by the Finance Act, 2016, initially targeted online advertisement services. Over time, its scope has expanded to include e-commerce supply and services. This article provides a comprehensive understanding of the Equalisation Levy, its implications, and the criteria governing its application.

Equalisation Levy

Introduction

The Equalisation Levy was introduced by the Finance Act, 2016 on online advertisement services, provision for digital advertising space, or any other facility or service for the purpose of online advertisement only. The Finance Act, 2020, has extended the scope of this levy to e-commerce supply and services made/provided/facilitated on or after 01-04-2020.

Transactions Subject to Equalisation Levy

The Equalisation levy is charged in respect of the following:

(a) Sum received or receivable by a non-resident for online advertisement services

Equalisation levy is charged at the rate of 6% from the consideration paid or payable for the services in the nature of online advertisement, provision for digital advertising space, any other facility or service for the purpose of online advertisement.

(b) Sum received or receivable for e-commerce supply of goods or services made or facilitated on or after 01-04-2020

Equalisation levy is charged at the rate of 2% from the consideration received or receivable for the e-commerce supply or services made or facilitated on or after 01-04-2020 by an e-commerce operator.

The Central Government may also specify any other service on which such levy shall be chargeable. Any income which is chargeable to equalisation levy is exempt from income-tax under Section 10(50).

However, where consideration received or receivable is in the nature of royalty or fees for technical services (FTS), no equalisation levy shall be charged if the following conditions are satisfied:

(a) The consideration received or receivable is taxable as royalty or fees for technical services in India; and

(b) Such taxability arises under the Income-tax Act read with the DTAA notified by the Central Government under Section 90 or Section 90A.

Equalisation Levy on Online advertisement services

When a non-resident provides services in the nature of online advertisement, provision for digital advertising space, any other facility or service for the purpose of online advertisement (prescribed services), a tax in form of equalisation levy shall be deductible by the recipient of service on the consideration paid for such service.

The equalisation levy shall be deductible by recipient of service being a resident of India carrying on business or profession or a non-resident having a Permanent Establishment (PE) in India. PE includes a fixed place of business through which the business of enterprise is carried on, whether partially or wholly.

Exceptions to Equalisation Levy 

Equalisation levy shall not be charged in the following scenarios:

(a) If non-resident has a PE in India – Equalisation levy shall not be charged if the non­resident providing the services has a PE in India and the service is effectively connected with such PE.

(b) Consideration is less than threshold limit – Equalisation levy shall not be charged if the aggregate amount of consideration received or receivable by the non-resident from the recipient of specified services in a previous year does not exceed Rs. 1 lakh.

(c) Service is not received for business or profession – Equalisation levy shall not be charged where such service is received for personal use and not for the purpose of any business or profession.

Equalisation Levy on E-commerce supply of goods or services

When an e-commerce operator makes, provides or facilitates any e-commerce supply or services on or after 01-04-2020, equalisation levy shall be payable by the e-commerce operator on the consideration received or receivable for such supply or service.

Meaning of e-commerce operator: ‘E-commerce Operator’ means a non-resident who owns, operates or manages digital or electronic facility or platform for the online sale of goods or online provision of services or both.

Meaning of e-commerce supply or services: 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

Online sale of goods and online provision of services shall include one or more of the following online services:

(a) Acceptane of offer for sale;

(b) Placing of purchase order;

(c) Acceptance of purchase order;

(d) Payment of consideration; or

(e) Supply of goods or provision of services, partly or wholly

Thus, even if the buyer sends the purchase order by email, it will be treated as an online sale of goods. As the said definition is inclusive, it cannot be restricted to the activities so prescribed. It may include all other activities if they are undertaken online.

When equalisation levy shall be charged?

Equalisation levy shall be charged when e-commerce supply or services made or provided or facilitated to the following persons:

(a) A person who is resident in India;

(b) A person who buys such goods or services or both using internet protocol address located in India;

(c) A non-resident person in the following circumstances:

• • • Sale of advertisement which targets a customer who is resident in India or a customer who accesses the advertisement through internet protocol address located in India; and
    • Sale of data collected from a person who is resident in India or from a person who uses internet protocol address located in India.

Exemptions from Equalisation Levy:

Equalisation levy shall not be charged in the following circumstances-

(a) Online advertisement service covered under section 165: If nature of a transaction is such that the equalisation levy can be charged both under Section 165 (from sum received or receivable from online advertisement services) and Section 165A (from the online sale of goods and services), it shall be charged under Section 165.

(b) Consideration is less than threshold limit: Equalisation levy shall not be charged if the aggregate of the sale, turnover or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated to the persons is less than Rs. 2 crores during the previous year.

(c) E-commerce operator has a PE in India: Equalisation levy shall not be charged if the e-commerce operator has a PE in India and the supply or service is effectively connected with such PE.

(d) Goods are owned or services are provided by a resident or non-resident having PE in India: Equalisation levy shall not be charged if ‘consideration received or receivable’ is attributable to the following transactions:

(i) Sale of goods which are owned by a person resident in India or Permanent Establishment (PE) of a non-resident person in India if such sale is effectively connected with such PE; and

(ii) Provision of services which are provided by a person resident in India or PE of a non­resident person in India if such provision of services is effectively connected with such PE.

Accordingly, no equalisation levy will be charged on the consideration received or receivable by an e-commerce operator from such transaction.

Calculation of Consideration for Equalisation Levy

The consideration received or receivable from e-commerce supply or services shall include:

(a) Consideration for sale of goods irrespective of whether the e-commerce operator owns the goods; and

(b) Consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.

However, the consideration received or receivable from e-commerce supply or services shall not include the consideration for:

(a) Sale of goods which are owned by a person resident in India or Permanent Establishment (PE) of a non-resident person in India if such sale is effectively connected with such PE; and

(b) Provision of services which are provided by a person resident in India or PE of a non­resident person in India if such provision of services is effectively connected with such PE.

Due date to deposit Equalisation Levy

The amount deducted as equalisation levy shall be paid to the credit of Central Government on or before the 7^th day of the month immediately following the month in which such levy was deducted. However, where equalisation levy has charged on e-commerce supply of goods or services, the amount of equalisation levy shall be paid to the credit of Central Government on or before the following dates:

Amount of equalisation levy shall be paid in Challan No. ITNS 285.

Consequences for non-deduction of Equalisation Levy

An assessee who fails to deduct the levy shall himself be liable for such payment. Further, if an assessee fails to deduct the equalisation levy or after deduction fails to deposit the same on or before the due date of furnishing return of income, amount paid for such services shall be disallowed under Section 40(a)(ib).

However, if equalisation levy is deducted and deposited in the subsequent year, the aforesaid consideration shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid.

Penalty

Where an assessee fails to deduct equalisation levy or part thereof, he shall be liable for payment of penalty for an amount equal to the amount of levy which he failed to deduct.

Consequences of late payment of Equalisation Levy

Interest – Where an assessee or e-commerce operator fails to deposit the equalisation levy by the due date, he shall be liable for payment of simple interest at the rate of 1% of such levy for every month or part of the month during which such failure continues.

Penalty – Where an assessee fails to deposit the amount deducted as equalization levy to the credit of Central Government by the due date, he shall be liable for payment of penalty at the rate of Rs. 1,000 per day during which such default continues. However, amount of penalty shall not exceed the amount which he failed to pay.

Where an e-commerce operator fails to pay whole or any part of the equalisation levy, he shall be liable for payment of penalty of an amount equals to the amount of equalisation levy he failed to pay.

Statement of Equalisation Levy

Every assessee or e-commerce operator who has deducted equalisation levy is required to prepare and deliver or cause to deliver a statement of equalisation levy in Form 1. Such statement is required to be filed with the Assessing Officer or to any other authority or agency authorised by the Board in this behalf. Such form can be furnished in the following manner:

(a) Electronically under digital signature; or

(b) Electronically through EVC (Electronic Verification Code).

Statement of equalisation levy is required to be furnished on or before 30^th June of the financial year immediately following the financial year in which equalisation levy is chargeable.

Belated or Revised return

Any assessee or e-commerce operator who has not furnished statement by the due date, he can furnish such statement at any time before the expiry of 2 years from the end of the financial year in which such prescribed service was provided or such e-commerce supply or service was made or provided or facilitated.

Further if assessee or e-commerce operator notices any omissions or wrong particulars in the statement, he may furnish a revised statement at any time before the expiry of 2 years from the end of the financial year in which such prescribed service was provided or such supply or services was made or provided or facilitated.

Notice for furnishing statement

Where an assessee or e-commerce operator fails to furnish statement of equalisation levy by the due date, the Assessing Officer may serve a notice requiring him to furnish such statement. Such statement is required to be furnished within 30 days from the date of service of notice.

Where an assessee or e-commerce operator fails to furnish statement even after issue of notice by the Assessing Officer, such person shall be liable for payment of penalty at the rate of Rs. 100 per day during which such default continues.

Important Points on Equalisation Levy

1. The Equalisation Levy was introduced by the Finance Act, 2016 on online advertisement services, provision for digital advertising space, or any other facility or service for the purpose of online advertisement only. The Finance Act, 2020, has extended the scope of this levy to e-commerce supply and services made/provided/facilitated on or after 01-04-2020. However, the equalisation levy shall not be charged in respect of the income taxable as royalty or FTS in India.

2. Equalisation levy is charged at the rate of 6% from the consideration paid or payable for the services in the nature of online advertisement, provision for digital advertising space, any other facility or service for the purpose of online advertisement.

3. Equalisation levy is charged at the rate of 2% from the consideration received or receivable for the e-commerce supply or services made or facilitated on or after 01-04-2020 by an e-commerce operator.

4. The equalisation levy shall be deducted by recipient of service being a resident of India carrying on business or profession or a non-resident having a Permanent Establishment (PE) in India. PE includes a fixed place of business through which the business of enterprise is carried on, whether partially or wholly.

5. Equalisation levy shall not be charged in the following scenarios-

(a) If non-resident has a PE in India – Equalisation levy shall not be charged if the non­resident providing the services has a PE in India and the service is effectively connected with such PE.

(b) Consideration is less than threshold limit – Equalisation levy shall not be charged if the aggregate amount of consideration received or receivable by the non-resident from the recipient of specified services in a previous year does not exceed Rs. 1 lakh.

(c) Service is not received for business or profession – Equalisation levy shall not be charged where such service is received for personal use and not for the purpose of any business or profession.

6. ‘E-commerce Operator’ means a non-resident who owns, operates or manages digital or electronic facility or platform for the online sale of goods or online provision of services or both.

7. 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

8. Equalisation levy shall be charged when e-commerce supply or services made or provided or facilitated to the following persons:

(a) A person who is resident in India;

(b) A person who buys such goods or services or both using internet protocol address located in India;

(c) A non-resident person in the following circumstances:

• • • Sale of advertisement which targets a customer who is resident in India or a customer who accesses the advertisement through internet protocol address located in India; and
    • Sale of data collected from a person who is resident in India or from a person who uses internet protocol address located in India.

9. The consideration received or receivable from e-commerce supply or services shall include:

(a) Consideration for sale of goods irrespective of whether the e-commerce operator owns the goods; and

(b) Consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.

10. The consideration received or receivable from e-commerce supply or services shall not include the consideration for:

(a) Sale of goods which are owned by a person resident in India or Permanent Establishment (PE) of a non-resident person in India if such sale is effectively connected with such PE; and

(b) Provision of services which are provided by a person resident in India or PE of a non­resident person in India if such provision of services is effectively connected with such PE.

11. The amount deducted as equalisation levy shall be paid to the credit of Central Government on or before the 7^th day of the month immediately following the month in which such levy was deducted. However, where equalisation levy has charged on e-commerce supply of goods or services, the amount of equalisation levy shall be paid to the credit of Central Government on or before the following dates:

12. Amount of equalisation levy shall be paid in Challan No. ITNS 285.

13. Every assessee or e-commerce operator who has deducted equalisation levy is required to prepare and deliver or cause to deliver a statement of equalisation levy in Form 1.

14. Statement of equalisation levy is required to be furnished on or before 30^th June of the financial year immediately following the financial year in which equalisation levy is chargeable.

Conclusion:

Equalisation Levy plays a vital role in taxing online advertising and e-commerce in India. Understanding its nuances, exemptions, and compliance requirements is crucial for businesses and professionals. Stay informed and comply with Equalisation Levy regulations to ensure smooth operations and avoid penalties.