Over the last decade, Information Technology has gone through an expansion phase in India and globally. Consequently, this has given rise to various new business models, where there is heavy reliance on digital and telecommunication networks.
As a result, the new business models have come with a set of new tax challenges in terms of nexus, characterization and valuation of data and user contribution. The combination of inadequacy of physical presence based nexus rules in the existing tax treaties and the possibility of taxing such payments as royalty or fee for technical services creates a fertile ground for tax disputes.
A new chapter (viii) titled ‘Equalisation levy’ is inserted in the finance bill which will take effect from 1st of June 2016 to provide for an equalisation levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.
With the introduction of the equalisation levy, the Govt. has been indirectly able to tax the global advertising companies and has set the more services may be added in the list of specified services in future.
The Salient Features of this Equalisation Levy are as Under: -
- It is to tax the e-commerce transaction/digital business which is conducted without regard to national boundaries.
- The equalization levy would be 6% of the amount of consideration for specified services received or receivable by a non-resident not having the permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having the permanent establishment in India.
- Specified services mean 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 by the Central Government.
- No levy if the aggregate amount of consideration does not exceed Rs.1 lac in any previous year.
Equalization Levy will not be Charged: -
- If service provider being a non-resident having Permanent Establishment in India.
- Service provider is a resident in India.
- Amount of consideration is less than Rs 1 lakh
Applicability and Manner of Deduction of Equalization Levy: -
This levy of equalization would be in the same manner as TDS, like the person making the payment for advertisement will require to deduct Equalization levy @ 6% on total amount of consideration and deposit the same to the account of Central Govt.
In case of failure to do so, these expenditures will not be allowed to claim for Income Tax Purpose.
Reason for Introduction of Equalization Levy: -
Many Companies who are providing services in the whole world register themselves in a country wherein the Tax rates are very low and pay very low taxes on their global income.
Like in India revenue of Google in FY 2014-15 was 4,108 Crores, hence the introduction of Equalisation levy would help the Governmentto collect a lot of money which till now was not Taxed that’s why many people are calling Equalisation levy as Google Tax. Because a major share of online ads spent goes to Google.
Due Date of Depositing Equalization Levy
Due Date of depositing Equalization levy to the account of Central Govt by the 7th day of the Month immediately following the said calendar Month.
Due Date of Furnishing Equalization Levy Statement (Form-1)
Due Date of Furnishing Equalization levy Statement is on or before 30th June of Financial Year ended. (after the end of Financial Year Assesse has to submit Form-1 on or before 30th June or within the prescribed time as the case may be.)
Revision or Late Submission of Form-1
If assesse failed to furnish statement within time or had furnish wrong and now want to revise the same he can upload belated return or revise return at any time before the expiry of two years from the end of financial year in which specified services were provided.
Interest on Default: -
If the amount of levy is not deposited within a specified time, then assessee shall have to pay 1% Interest on such levy for every month or part of the month by which such credit of the Tax or any part of Tax delayed.
Failed to deduct levy: -
penalty amount will be equal to the amount of Equalization levy that Assessee failed to deduct.
Levy has been deducted but not deposited then Penalty amount will be Rs. 1,000 per Day till default continues but the total of a penalty shall not exceed the amount of equalisation levy.
Penalty for Default in Furnishing Statement: -
If Assessee failed to furnish the Equalization levy statement within the prescribed time, he has to pay penalty Rs. 100 Per day till the default continues.