Equalisation Levy with example
Equalisation Levy: – The Equalisation levy was introduced by Finance Act 2016 (effective from 1st June 2016). Equalisation levy is governed by Finance Act 2016 and it is not a part of Income Tax Act 2016. The purpose of introducing the equalisation levy is to levy tax on consideration of certain digital transactions received by non-resident person from a resident person. Initially only specified services have been cover under equalisation levy in Finance Act 2016. However, Finance Act 2020 enhanced the scope of equalisation Levy and includes the e-commerce transaction also. In this article we will discuss the equalisation levy with example on “Specified Services” and “E-commerce transaction”.
Specified Services: – Specified services for equalisation levy cover the following services
1) Online Advertisement
2) Any provision for digital advertising space or any facility / service for the purpose of online advertisement
3) Any other services which may be notified later by the central government. However, no such services are yet notified for this purpose.
E-Commerce transaction: – E-commerce transaction for equalisation levy cover the following type of e-commerce supply or services:-
1) Online sale of goods or provision of services owned by e-commerce operator
2) Facilitation by e-commerce operator for online sale of goods or services.
3) Any combination of above activities.
E-commerce operator means a non-resident entity who owns operates or manages digital or electronic facility for online sale of goods or online provision of services or both.
Applicability of equalisation Levy:-
Applicability of equalisation levy on specified service:-
In respect of specified services, equalisation levy will be application only if consideration for specified services received or receivable by a non-resident person from following persons:-
1) A person resident in India and carrying on profession or business or
2) A non-resident person having a PE (permanent establishment) in India.
Equalisation levy shall not be applicable on specified services if:-
1) Non-resident providing specified services has a PE in India and income from such specified services is effectively connected with such PE.
2) Specified services is not for the purpose of business or profession
3) The total amount of consideration payable for specified services does not exceed INR 1 lakh in any previous year.
Applicability of Equalisation Levy on E-Commerce Transaction:-
In respect of e-commerce transaction, equalisation levy will be applicable only if non-resident e-commerce operator provide or facilitated e-commerce transaction to following persons:-
1) Resident person in India or
2) Person who buys goods or services using IP address located in India or
3) A non- resident person for sale of advertisement targeting customer resident in India or customer accessing advertisement from IP address located in India or
4) A non-resident person for sale of data collected from a resident in India or person using IP address located in India.
Equalisation levy shall not be applicable on e-commerce transaction if:-
1) Where non-resident e-commerce operator has a PE in India and e-commerce supply or services is effectively connected with such PE.
2) Where equalisation levy is chargeable @ 6%
3) Turnover or Gross receipts of the e-commerce operator from the e-commerce supply or services is less than INR 20 million (INR 2 Crore) during the previous year.
Equalisation levy effective date:- In respect of “Specified services” the effective date for charging equalisation levy is 1st June 2016. In respect of “E-commerce transaction” the effective date for charging equalisation levy is 1st April 2020.
Rate of Equalisation Levy: – For “Specified services” rates for equalisation levy is 6% on consideration amount. In case of “E-commerce transaction” the effective rates for equalisation levy is 2% of the consideration amount.
Who is responsible for payment of equalisation levy: – In case of “specified services”, a payer of consideration is responsible for depositing the equalisation levy. In case of “e-commerce transaction”, a non-resident supplier (e-commerce operator) is responsible for depositing the equalisation levy.
Equalisation levy with example:-
Equalisation levy with example in case of specified services: – Mr. X has taken the services of Google for business promotion. Mr. X has made payment of INR 200000 to Google for the advertising service. In this case Mr. X is require to deduct an equalisation levy @ 6% of INR 200000 i.e. INR 12000. In this case Google shall receive the payment of INR 188000.
Equalisation levy with example in case of e-commerce transaction: – ABC Inc. is a foreign company which own platform for online sale of goods. If ABC Inc. sold goods for INR 5000 plus GST then ABC Inc. has to pay equalisation levy @ 2% on INR 5000 which shall be INR 100.
Let’s take another situation, ABC Inc also facilitates own platform to others seller who list their goods on its portal for sale. Let’s assume, XYZ limited lists his products on the portal of ABC Inc and issue invoice to customer for sale. There can be two scenarios here. One is that ABC Inc. shall receive entire consideration form customer and pay net amount to XYZ limited after deduction of its commission. Another scenario shall be that XYZ limited received the entire consideration from customer directly and pays commission to ABC Inc. In both the scenarios the equalisation levy shall be charged on consideration received from customer.
Due date of depositing equalisation levy:- In case of specified services the due date for payment of equalisation levy is 7th day of subsequent month. In case of e-commerce transaction the due date for payment of equalisation levy is 7th day after end of quarter. However, for quarter ended on March the due date for payment is 31st March.
Interest on delay payment of equalisation levy: – According to section 170, delayed payment of equalisation levy shall be liable to simple interest at the rate of one percent (1%) for every delayed month or part thereof from the month of liability till month of payment.
Income tax Exemption under section 10(50):- Section 10(50) was introduced by Finance Act 2016 to provide exemption on income arising from specified services on which equalisation levy is charged. Section 10(50) further amended by Finance Act 2020 and include the e-commerce transaction income in exemption on or after 1st April 2021. However in Finance bill 2021, it is clarifying that section 10(50) exemption on e-commerce transaction should be effective from 1st April 2020.
In Finance Bill 2021 in section 10(50), it is also clarify that equalisation levy shall not be applicable on income which are taxable as royalty or fees for technical services in India under Income tax Act.
Non deduction of expense under section 40(a)(ib) :- As per section 40(a)(ib), if equalisation levy is not deducted on specified services or after deduction but not paid to the government, on or before the due date of filing income tax return then consideration paid on specified services shall not be allowed as deduction to assessee. However, such deduction shall be allowed in the year when equalisation levy is actually deducted and paid to the government.
Double Taxation Avoidance Agreement (DTAA) :- Since equalisation levy is not a part of Income tax Act 1961 then the benefit of DTAA is not available for such equalisation levy in India. However, non-resident may receive foreign tax credit of such equalisation levy in its resident country according to its domestic taxation law.
Others relevant provision of equalisation levy:-
Annual Statement of equalisation levy: – As per rule 5(2) of equalisation rule 2016, Annual statement to be furnished in Form No 1. The due date for furnishing the annual statement is 30th June after end of financial year. Belated annual statement or revised annual statement may also be furnished within two years from end of financial year in which transactions were undertaken. Revised annual statement can be filled only if original annual statement were timely filed.
Penalty on late furnishing annual statement: – As per section 172, there is penalty on late furnishing of annual statement of INR 100 per day from date of due date till date of furnishing annual statement.
Penalty on late payment: – According to section 171, there is penalty equal amount of equalisation levy if equalisation levy has not been deducted in respect of specified services. There is also penalty equal amount of equalisation levy if equalisation levy has not been paid for e-commerce transaction. If after deduction equalisation levy on specified services but not paid then there is penalty of INR 1000 per day from the date of failure of payment till date of payment (Maximum upto amount of equalisation levy).
Penalty on furnishing false information:- As per section 176, if there is false information is furnishing in annual statement then there is penalty of imprisonment upto three years with fine.
Appeal:- As per section 174, one can file appeal before CIT (Appeals) against penalty order of AO within 30 days from receipt of order in Form no 3. As per section 175, a person may also appeal before Appellate Tribunal against appellate order within 60 days from receipt of order in Form no 4.
Also Read, “GST provision on E Commerce”
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