Equalisation Levy

New era of E-commerce business models have created new tax challenges. The Country was facing issues for the levying the tax on e-commerce business models, which broadly includes:

• The difficulty in identifying the nature of payment and creating a link between taxable transaction and jurisdiction over that transaction due to non physical presence of business.
• The problem in identifying the taxpayer for the payment of income tax.

Hence, in order to address these challenges and with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India, Equalisation Levy was introduced in India by Central Board of Direct Tax (CBDT), issuing a notification dated 27^th May, 2016 in India.

It was stated that the provisions of Chapter VIII related to the Equalisation Levy would be applicable with effect from 1^st June, 2016.

However, Equalisation Levy is charged only for services and rate of equalisation levy is 6%. There is no such tax on goods sold through E-commerce.

Chapter VIII of Finance Act, 2016 – Scheme of the Equalisation Levy

All the provisions related to EY are contained in Chapter –VIII, which is a separate and Independent of Income Tax Act.

The need of providing separate chapter is that “If it was a part of Income Tax Act, the tax would not be possible as Double Taxation Avoidance Agreement (DTAA) will not permit to tax without a Permanent Establishment (PE)” as DTAA overrides Income Tax Act.

Hence, the provisions of Equalisation Levy contains in chapter – VIII covers everything i.e. charging of tax, revenues liable to tax, collection machinery, assessment, penalty, prosecution and appeals etc.

Equalisation levy Section wise coverage

Section 163 provides for the jurisdiction comparable to Section 1 of Indian Income-tax Act (ITA).
Section 164 provides for definitions.
Section 165 provides for the charge of tax (Section 4 of ITA), Scope of tax (Section 5 of ITA), and the assessee [Section 2 (7) of ITA].
Section 166 provides for collection and recovery of equalisation levy.
Section 167 provides for filing of annual return/statement.
Section 168 provides for assessment.
Section 169 provides for Rectification of Mistakes
Section 170 provides for Interest on delayed payment.
Section 171 provides for Penalty for failure to deduct or pay
Section 172 provides for penalty for failure to furnish statement
Section 173 to 180 deals with the penalty, prosecution & appeals.

Applicability of Equalisation Levy

Equalisation Levy shall operate as TDS, which is required to be deducted at the time of making payment by the service recipient to non-resident.

In the simple language, the following two conditions should be satisfied for the applicability of EL:

1. It is charged on consideration received or receivable by a non-resident (i.e. payment should be made to a non-resident service provider), –
   -From an Indian resident and carrying on business or profession or
   -From a non-resident having a permanent establishment in India,
   -for any specified service, – @ 6% of the consideration

2. The aggregate amount of the consideration for specified services received or receivable should exceed Rs. 1 lakh in any previous year.

Note: In the following cases, Levy will not be applicable:

1. The non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment.
2. Consideration paid during the year is upto Rs. 1 lakh.
3. Payment is not for carrying on business or profession.

Specified Services Covered Under Equalisation Levy

Only the specified services are covered for the levy, it doesn’t cover any other service.

Hence, “Specified service” means: –
-Online advertisement,
-Any provision for digital advertising space or any other facility or service for the purpose of online advertisement and,
-Includes any other service as may be notified.

Note: “Online” means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network.

Rate of Equalisation Levy

Currently the applicable rate of equalisation levy is 6% of the gross consideration to be paid.

No Grossing up

Chapter VIII provides that even if Indian resident payer does not deduct equalisation levy, he has to make payment of EL to Government of India.

Thus, consider that the Indian resident has made a payment of Rs. 100 to the non-resident, he has not deducted any tax at source. He will simply pay Rs. 6 to the Government of India.

Due date of Equalisation Levy Compliance

• The Equalisation levy has to be deposited by 7^th of next month by payer in which the tax was deducted.
• The payer/deductor (Indian resident or PE of non-resident) is required to file an annual statement (Form No. 1) every year on or before 30^th June immediately following financial year.
• The statement contains details of consideration and Equalisation Levy.
• The provisions for revising the return, assessment and rectification of mistakes are also available. Such statement can be revised and filed at any time before the expiry of two years from the end of financial year in which specified services was provided.

Hence, recipient (non-resident) is not required to fulfill any compliance.

Consequences of Delayed Payments (Non compliance of equalisation levy)

1. Interest
   In case delay in payment: Interest is charged at 1% of the outstanding levy for every month or part thereof is delayed.

2. Penalty for failure of payment
   Equalisation Levy not deducted: Penalty shall be equal to the amount of levy failed to be deducted. It shall be in addition with amount of outstanding equalisation levy and interest.
   Equalisation Levy deducted but not deposited: Penalty equal to Rs. 1,000 per day for every day of failure continues, subject to the maximum of the levy failed to be deducted. It shall be in addition with amount of outstanding equalisation levy and interest

3. Penalty for failure of filing annual statement
   Penalty shall be Rs. 100 per day for each day during which the failure continues.

4. Prosecution
   If a false statement has been filed then the person may be subjected to imprisonment of a term up to 3 years and a fine.

Equalisation levy Compliance Expert of EAdvisors