Equalisation Levy

Background:

Since the past few years, digitalization has grown rapidly. India is another nation that has seen a rise in digitalization. Where the Indian companies were availing services like online advertisement or purchase of goods or services through e-commerce business. Where most of the payments were made to digital companies, situated outside India. However, such companies were not paying taxes in India because they are not having place of business in India. The revenue from these services rendered by digital companies cannot be attributed to the operations of the Indian entity and due to the lack of a PE in India, so no tax was applicable on the said income. These leaded to loss of tax revenue of service recipient countries, thus to overcome this Base Erosion and Profit Shifting “BEPS” plan were introduced as Equalisation Levy in India, Vide Finance Act, 2016.

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Category of Services/Goods on which Equalisation Levy is applicable:

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There are majorly ?two categories of Goods/services for which equalisation levy is applicable:

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1.?????? Online Advertisement

2.?????? Sales by e-commerce Operator

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1.?????? Online Advertisement:

Tax is required to be deducted by the recipient of services while making payment to Supplier.

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Where,

• Supplier : Non-Resident service provider.
• Service : Online Advertisement or; Any provision for digital advertising space or facilities/ service for the purpose of online advertisement; or any other services notified by Govt or
• Recipient : Resident carrying business or profession OR a Non-Resident having PE in India.
• Tax Rate : 6 % on gross amount payable

Note: The levy will be applicable only on B2B transaction and not on B2C or C2C transactions.

Exceptions.

• Tax not required to be deducted if payment made to single service provider doesn’t exceeds Rs. Rs.1,00,000 in a FY.
• Were, service provider is having PE in India and the specified services is effectively connected with such PE.
• Where services has not procured for Business purpose.

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2.?????? E-Commerce Supply or services:

Tax is required to be deducted by the recipient of E-commerce supply or services while paying Consideration to Supplier.

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Where,

• Supplier : E-commerce operator (Non-Resident and not having PE in India)
• E-commerce supply or services : Online sale of goods (whether owned by supplier or not) or provision of services or combination thereof?
• Consideration: Consideration for the sale of goods irrespective of whether the e-commerce operator owns the goods or; provision of services whether service is provided or facilitated by the e-commerce operator.
• Recipient:

a)????? Person resident in India

b)????? Non resident (having PE in India)

c)?????? Sale of advt. targeting a customer resident in India or who accesses the advt. thro IPA located in India; and

d)????? Sale of data collected from a person resident in India or who uses IPA located in India.

e)????? A person who buys such goods or services or both using internet protocol address located in India.

• Tax Rate : 2 % on gross amount payable

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Exceptions.

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• Where, e-commerce service provider is having PE in India and the specified services is effectively connected with such PE.( taxable as foreign company)
• Where the sales/turnover or gross receipts of service provided by e- commerce operator do not exceed Rs 2 Crores during the year

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Exemption of Income covered under equalisation levy : As per section 10(50) of Income Tax Act, Income derived from equalisation levy shall not include income from Royalty or FTS.

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Important Note: Since, Equalization levy is part of the Finance Act 2016 and not a part of the Indian Income-tax Act, 1961, and therefore Treaty benefit would not apply on the same.

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