Equalisation Levy: Applicability, Features and Penalty

Background of Equalisation Levy

Business may be conducted in digital domain without regard to national boundaries. This may dissolve the link between an income - producing activity and a specific location. To tackle taxation issues in transaction conducted in cyber space, equalization levy has been imposed. 

The Finance Act 2020 has been enacted after it received the assent of the President. The provisions of equalization levy are not part of the income-tax law. This levy is under a separate provision of law.

A. Charge of Equalisation Levy

This levy shall come into force on June 1, 2016. As per Section 165 of the Finance Act, 2016, equalization levy shall be charged at the rate of 6% of the amount of  consideration for specified services received or receivable by a non- resident from

• a person resident in India and carrying on business or profession; or
• a non- resident having a permanent establishment in India.

Specified Services Covered Under Equalisation Levy

• online advertisement;or
• 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 this behalf.

Example:

Mr. A has availed the service of Facebook for business promotion and has made a payment of Rs. 2,00,000 to Facebook for the advertising services availed.

Solution:

As per provisions of section 165, Mr. A shall be required to deduct an equalization levy @ 6% from the payment of Rs. 2,00,000/- to Facebook, i.e. Rs. 12,000/- shall be deducted and deposited as equalization levy and Facebook shall receive the payment of Rs. 1,88,000/-.

When Equalisation Levy is not applicable

• The non-resident providing specified service has a permanent establishment in India and income from such specified service is effectively connected to this permanent establishment; or
• Where the specified service is not for the purpose of carrying out business or profession; or
• The aggregate amount of consideration payable for the specified service received or receivable does not exceeds Rs. 1 lakh in any previous year.

Collection & recovery

The amount of equalisation levy so deducted by the payer has to be paid to the credit of the government by 7th day of the month following the month in which the equalisation levy is deducted.

Even if equalisation levy is not deducted, the payer is liable to pay the levy to the credit of central government.

Due Date of Furnishing the statement

Due date of furnishing equalisation levy statement (in Form No. 1) is on or before 30th June of Financial Year ended. This is the annual statement.

Interest

Simple interest is charged at 1% of the outstanding levy for every month or part thereof is delayed.

Penalty

Income Tax Exemption

When equalisation levy is deducted under the above provisions, income of the recipient non- resident is exempt under section10(50).

B. Equalisation levy on e-commerce supply or services

This levy shall come into force from 1 April, 2020. The Finance Act, 2020 has introduced a new provision i.e. section 165A in the Finance Act, 2016, to enhance the scope of the Equalisation Levy. Equalisation Levy will now be extended to an e-commerce operator on e-commerce supply and services.

Equalisation Levy shall be charged at the rate of 2% of the amount of consideration received or receivable by an e commerce operator from e commerce supply of goods and services made by it-

• To a person resident in India; or
• To a non-resident in the specified circumstances; or
• To a person who buys such goods/services using internet protocol address located in India.

E-commerce operator – It means a non resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services or both.

Online supply or services

• Online sale of goods owned by the e commerce operator; or
• Online provision of services provided by the e commerce operator; or
• Online sale of goods or provision of services facilitated by the e commerce operator; or
• Any combination of the above activities

For the above purpose specified circumstances mean

• Sale of advertisement, which targets a customer, who is resident in India or a customer who access the advertisement though 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

When Equalisation Levy is not applicable

• E commerce operator  has a permanent establishment in India and such e commerce supply is effectively conducted with such PE;
• Equalisation levy is levied under the provisions given under section 165 of the Finance Act, 2016; or
• sales, turnover or gross receipts, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs. 2 crore during the previous year.

Collection & recovery

The equalisation levy shall be paid by every e-commerce operator to the credit of government quarterly within the following due dates:

Furnishing the statement

Every e-commerce operator shall furnish a Statement electronically within a specified time in a specified form in respect of e commerce supply of goods or services during the financial year.

Interest

Simple interest is charged at 1% of the outstanding levy for every month or part thereof is delayed.

Penalty

Income Tax Exemption

Income from the above activities in the hands of e-commerce operator is exempt under section 10(50) with effect from the assessment year 2021-22.

Disclaimer:  This is meant purely for general education purpose. While the information is believed to be accurate to the best of my knowledge, I do not make any representations or warranties, express or implied, as to the accuracy or completeness of this information. Reader should conduct and rely upon their own examination and analysis and are advised to seek their own professional advice. This note is not an offer, invitation, advice or solicitation of any kind. I accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies upon it.