Taxation Indian digital Economy: Equalisation Levy 

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 a 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 the inadequacy of physical presence-based nexus rules in the existing tax treaties and the possibility of taxing such payments as royalty or fees 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 equalization levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having a permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having a permanent establishment in India.

With the introduction of the equalization levy, the Govt. has been indirectly able to tax the global advertising companies and has set the more services that may be added to the list of specified services in the 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%/2%  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. latest Introducing a new Equalisation Levy at 2% on the consideration received/receivable by an e-commerce operator from the below transactions i.e E-commerce services/Supply :

1. Online sale of goods owned by the e-commerce operator; or
2. Online provision of services provided by the e-commerce; or
3. Online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
4. Any combination of the above-mentioned activities

Services covered under equalisation levy

introducing a new Equalisation Levy at 2% on the consideration received/receivable by an e-commerce operator from the following transactions (e-commerce supply or services):

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

Specified services mean online advertisement, any provision for digital advertising space, or any other facility or service for the purpose of online advertisement and include any other service as may be notified by the Central Government.

No levy if the aggregate amount of consideration does not exceed Rs.2 cr in any previous year.

Equalization tax returns are applicable if online sales of goods or services have been made available;

• Resident of India
• Non-resident, where the condition:
  • An equalization levy on online advertising is feasible which targets a customer who is resident in India, or a customer who accesses the advertising if it is directed at Indian consumers or if anyone consumes an ad via an IP address in India.
  • An equalization Levy return is required if data is sold and the data is of an Indian resident or collected from someone who is resident in India or from a person who uses an IP address located in India
  • Every person who buys e-commerce goods/services via an Indian IP address located in India.

Equalization Levy will not be Charged: -

• If the service provider is a non-resident having a Permanent Establishment in India.
• The service provider is a resident of India.
• The amount of consideration is less than INR 2 Cr  

Clearly, there are no recommended thresholds for the exclusion of the number of accounts or the number of users.

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%/2% on the 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 purposes.

Thus, the levy includes online sales of any goods or provision of services of any services by or via a non-resident e-commerce operator.
The question remains if the gross value of goods or services bought and sold on the platform or the information sharing fee or commission charged by commercial businesses or aggregators is the consideration specific topic to a levy for online marketplace operators or aggregators.

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 Government to 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 Assess has to submit Form-1 on or before 30th June or within the prescribed time as the case may be.) 

The revision or Late Submission of Form-1

If the assessee failed to furnish the statement within time or had furnished it wrong and now wants to revise the same he can upload a belated return or revise the return at any time before the expiry of two years from the end of the financial year in which specified services were provided.

Impact & Consequences of Delayed Payments on Equalization levy

Interest on Default: In the event of delayed payment under Equalization levy: Interest is charged at 1% of the outstanding levy for each month or part of it is delayed.  If the amount of levy is not deposited within a specified time, then the assessee shall have to pay one percentage 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.

In the event of non-compliance on behalf of the recipient of the service under Equalization levy: Complying with the Equalization levy is the obligation of the recipient of the service.

Penalty for default of payment- Failed to deduct levy: -

• Equalization Allowance not deducted: penalty equivalent to the total of the levy not deducted (along with interest and depositing of the principal levy outstanding).
• Equalization Duty deducted but not deposited: penalties equal to INR 1000/day subject to the maximum levy not deducted (along with interest and depositing of the principal levy outstanding). Levy has been deducted but not deposited then the 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.
• Disallowance of such expenses by the payer (unless the defect is rectified).

Penalty for failure to filing statement of compliance /Default in Furnishing Statement: -

If Assessee failed to furnish the Equalization levy statement within the prescribed time, he has to pay a penalty of Rs. 100 Per day till the default continues. this INR 100/-  per day for each day of non-compliance.

Prosecutor's Office

• If a false statement has been filed, a person may be subject to a term of imprisonment of up to three years & fine

Disclaimer: The content of this post isn't considered to be professional or legal advice, We aren't responsible for any damages arising from your access to the location content & must not be relied on or used as a substitute for legal advice from a lawyer professional in your jurisdiction. CARajput is among India's big digital compliance services platform which committed to helping people have started & developed their businesses. We had started with the goal of creating it easier for start-ups to start out their business. Our main aim is to assist the businessman with applicable laws & regulations compliance and providing support at each & every level to make sure the business stays compliant and growing continuously. For any query, help or feedback you may in touch on singh@carajput.com or Call or what’s-up on 9-555-555-480