Equalisation Levy - A Comprehensive Analysis

1. Background

Over the period of time, the technology has change the way of business. Due to the expansion in the information and communication technology, the supplies of digital goods and services have undergone exponential growth which helps the business to expand without any national boundaries.
 
The digitalization in the businesses has created the new opportunities of growth and earning. It has also made it possible for the businesses to conduct themselves in ways that did not exist earlier, and given rise to new business models that rely more on digital and telecommunication network, do not require physical presence, and derives substantial value from data collected and transmitted from such networks.
 
This new business models has created new tax challenges, typical in Income tax. Since, in e-commerce, it is difficult to characterize the nature of payment and to establish a nexus between a taxable transaction and taxing jurisdiction. Further, it is difficult to locate the transaction, activity and identify the taxpayer for income tax purposes. In addition to the above, the digital business had challenges physical presence-based permanent establishment rules.
 
In order to the address the challenges; the Hon’ble Finance Minister has introduced the new Chapter called “Equlisation levy” vide Finance Act 2016.
 
Further, vide Finance Act 2021, the Hon’ble Finance Minister amended the relevant provisions and provides the certainty and clarification that transactions taxable under income-tax are not liable for equalisation levy. Further, he also clarifies the applicability of equalisation levy on physical/offline supply of goods and services.

2. Introduction

As stated above, the concept of Equlisation levy was introduced vide Finance Act, 2016 with effect from June 1^st 2016. The Finance Act has introduce the provision in Chapter VIII and provided the section 163 to Section 180. The provision of Equlisation levy extends to whole India except the state of Jammu and Kashmir.
 

3. Detail discussion of the relevant provisions

1. Scope of Equalisation Levy

 In order to understand the applicability of equalisation levy we have to analysis section 165 and when you read the section we have found that the essential ingredients of equalisation levy which is as under:
 

1. Amount of consideration in excess of one Lakh rupees.
2. Specified services received or receivable
3. Service receipt, who is Non Resident, and
4. Services Provider, who is
   1. Resident in India and carrying business in India; or
   2. Non-Resident having permanent establishment in India.

 When all the above ingredients are in your transaction then you are liable for equalisation levy at the rate of 6% on amount of consideration.
 
However, in Finance Act 2020, the Scope of equalisation Levy was further extended and in this regard, a new section 165A was introduced. According the section, e-commerce operators are also covered in the provision of this chapter.
 
For the purpose of this chapter "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;

 Due to the said section, now essential ingredients of equalisation levy is as under”
 

	Section 165	Section 165A
Amount of consideration	In Excess of INR 1 lakh	In excess of INR 2 Crore
Services/ Goods received or receivable	Specified service” means online advertisement; or any provision for digital advertising space or any other facility or service for online advertisement; or any other service as may be notified by the central government on this behalf.	e-commerce supply or services made or provided or facilitated by it
Service receipt, Who is	Resident in India and carrying business in India; or Non-Resident having permanent establishment in India.	Resident in India Non Resident in specified circumstances; or Buy such goods or services or both using internet protocol address located in India.
Services Provider	Non-Resident	E-commerce operators
Rate of Equalisation Levy	6%	2%

2. Non-applicability of Equalisation Levy as per section 165

Equalisation levy is not applicable in the following cases:

* If the non-resident providing specified service has a permanent establishment in India and income from such specified service is effectively connected to this permanent establishment; or  

* Where the payment for specified service by the person resident in India (or the permanent establishment in India) is not for the purpose of carrying out business or profession; or

3. applicability of Equalisation Levy as per section 165A

Equalisation levy is not applicable in the following cases:

*  Where e-commerce operator making supply of goods or services has a permanent establishment(P.E.) in India and such e-commerce supply is effectively connected with such P.E.;  

* Where equalisation levy is levied under the provisions given under section 165 of the Finance Act, 2016; or

Other relevant provisions for Equalisation levy

1. Collection and Recovery 

The amount of equalisation levy shall be paid to the government's credit by the 7th day of the month following the month. The equalisation levy is deducted by every person, being a resident carrying on business or profession a non-resident who has a permanent establishment in India.
 
If the equalisation levy is not deducted, the payer has to pay the central government.
 
However, every e-commerce operator shall quarterly pay equalisation levy to the credit of government within the following due dates:
 

For the quarter ending	Due Date
30 June	7 July
30 September	7 October
31 December	7 January
31 March	31 March

2. Due Date of Furnishing the statement

The due date of furnishing the statement of equalisation levy in Form No.1 is on or before June 30 of the Financial Year. This is the annual statement.
 
Keeping in mind the non-availability of the utility of filing certain forms and technical glitches faced by the taxpayers during the financial year 2021-2022, CBDT has extended the due date for furnishing the statement of Equalisation Levy for the F.Y. 2020-21 to August 31, 2021.
 
However, every e-commerce operator shall furnish a Statement electronically within a specified time in a specified form in respect of the e-commerce supply of goods or services during the financial year.

3.Consequences of delayed payments Interest

Simple Interest at the rate of 1% for every month or part of a month shall be payable when the equalisation levy collected is not credited by the payer to the account of the Central Government within the due date of payment.
 
 Penalty
 

Situation	Penalty (in addition to paying equalisation levy and interest)
Failure to deduct equalisation levy (wholly or partly)	A penalty equal to the amount of equalisation levy
Failure to deposit with government	Rs. 1000 for each day of default (not to exceed amount of equalisation levy)
Failure to furnish a statement	Rs. 100 for each day of default

 
No penalty is imposed if the assessee proves to the Assessing Officer that there was a reasonable cause for the failure given above.

4. Exemption under Income Tax

When an equalisation levy is deducted under the provisions of section 165/165A, an income is exempt under section 10(50) of the Income Tax act.
 
However, this exemption shall not apply for royalty/fees for technical services taxable under the Income Tax Act read with double taxation agreements.
 
Authored by CA Manish Gupta & CA Rahul Pareva
For any queries or suggestions, email at info@manishanilgupta.com

Disclaimer!

This article is meant purely for knowledge and educational purposes. It contains only general information and references to legal content. It is not legal advice, and should not be treated as such.