Equalisation Levy - PKC Consulting

What is Equalisation Levy?

Equalisation Levy means the tax leviable on consideration received or receivable for any specified service.

Many online advertisement portals (e.g. Facebook, Google and Twitter) are NR and do not have permanent establishment (P.E) in India. Many resident assesses make payment to Facebook / google for advertisement and claim the same as business expenditure u/s 37.

Suppose M/s ABC Limited (Resident) made payment to Facebook for advertisement. M/s ABC Limited will take deduction for such payment. Facebook not having a P.E in India is not liable to pay tax on such Income. As a consequence of the same, India is losing its revenue since payer gets the deduction & amount received by the payee is not taxable. Therefore, vide Finance Act, 2016 (w.e.f 1/6/2016) the concept of equalization levy was introduced

What are the specified services?

Specified services are

Online Advertisement
Any provision of digital space for online advertisement or any other facility or service for the purpose of online advertisement (i.e related services)

Applicability of Equalisation Levy on specified services:

The two conditions to be met to be liable to equalization levy are:

The payment should be made to a non-resident service provider
The aggregate payment made for such specified services to one service provider exceeds Rs. 1,00,000 in a financial year and the payment is to carry out business or profession.

Note: Equalisation levy is applicable when:

Payer– Resident Indian carrying business or profession or Non-resident having a Permanent establishment in India need to deduct the equalisation levy

Payee– Non-resident service provider not having a P.E in India

When is equalisation levy not applicable?

This concept extends to the whole of India except the Union Territory of Jammu and Kashmir.
The consideration received or receivable for the specified services and for e-commerce supply or services shall not include the consideration, which are taxable as royalty or FTS in India under the Income Tax Act read with the Double Taxation avoidance agreement

What is the rate of Equalisation Levy?

6% on the consideration paid to non-resident towards specified services.

Who is responsible for depositing the levy?

The person making the payment is liable to deduct Equalisation Levy from the amount paid/ payable to NR @ 6% and deposit of Equalisation levy to the Government Treasury and all related compliances viz. the filing of Equalisation Levy return, etc.

The Equalisation levy deducted during the month is to be deposited by every payer to the credit of CG by the 7th of the following month through an Equalisation Levy challan.
If any person fails to deduct Equalisation Levy, then also he is liable to pay the levy to the Govt.
Interest @ 1% per month or part of the month shall be applicable on late deposit of levy u/s 165
Payer doesn’t deduct or deducted but failed to deposit the Equalisation Levy to the credit of the CG, then the whole expenditure will not be allowed as deduction u/s 40(a)(ib) of the Income Tax Act, 1961 while computing the total income.

What is the tax implication in the hands of the provider?

In the hands of the payee, the income arising from any specified service which is chargeable to Equalisation levy shall be exempt u/s 10(50) of the Income Tax Act, 1961

Equalisation levy on e-commerce operators

The Finance Act, 2020 expanded the scope of the Equalisation Levy to include all non-resident e-commerce operators providing “e-commerce supply or services” w.e.f 1/4/2020

A non-resident e-commerce operator is liable to pay equalisation levy @ 2% on the consideration received/ receivable from e-commerce supply of goods or services or a combination of both if the sales, turnover or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated exceeds ₹ 2 crores during the previous year.

Applicability

Where a non-resident e-commerce operator supplies to :

A person resident in India (irrespective of his IP address)
A person who buys such goods or services or both using Internet Protocol (IP) address located in India
A NR in the specified circumstances

Non-applicability

It does not apply to transactions already covered under specified services above i.e online advertisement or related services
It does not apply where the e-commerce operator making or providing or facilitating e-commerce supply or service has a P.E in India and such e-commerce supply or services is effectively connected with such P.E

Meaning of certain terms:

A NR in specified circumstances means

Sale of advertisement, which target a customer, who is resident in India or accesses the advertisement through IP address located in India.
Sale of data, collected from a person who is resident in India or from person who uses IP address located in India.

“E-commerce operator” 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.
“E-commerce supply or services” means

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

Who is liable for depositing the levy on e-commerce supplies ?

Equalisation levy shall be paid by every e-commerce operator to the credit of the CG for the quarter of the FY ending within the following time limit:

Date of ending of the quarter of the FY	Due date
30^th June	7^th July
30^th September	7^th October
31^st December	7^th January
31^st March	31^st March

Interest @ 1% per month or part of the month shall be applicable on late deposit of levy u/s 165A
If an e-commerce operator fails to deposit the Equalisation Levy, then a penalty equal to the amount of equalisation levy that he failed to deposit, will be charged.
In the hands of the payee, the said amount shall be exempt u/s 10(50) of the Income Tax Act, 1961

Points to be noted:

Equalisation levy is not a part of Income Tax Act, 1961 hence non-resident e-commerce operator will not get the credit of the same in their home country
Equalisation levy is to be charged on the gross amount as clarified by the Finance Act, 2021
Consideration received or receivable from e-commerce supply or services shall include:
Consideration for sale of goods irrespective of whether the e-commerce operator owns the goods, however, it shall not include consideration for sale of such goods which are owned by a person resident in India or by a PE in India of NR, if sale of such goods is effectively connected with such PE
Consideration for provision of services irrespective of whether such service is provided or facilitated by the e-commerce operator, however it shall not include consideration for provision of services which are provided by a person resident in India or by PE in India of NR, if provision of such services is effectively connected with such PE

Every payer or e-commerce operator has to file return in FORM No. 1 on or before 30th June of immediately following FY

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