Equalization Levy – Tax impact on Foreign e-Commerce Operators in India

What is Equalization Levy ?

The rapid growth of information and communication technology has resulted in substantial expansion of the supply and procurement of digital goods and services globally including India. The business in digital domain does not occur in any physical location but it takes place in “cyberspace”. Persons carrying business in digital domain could be located anywhere in the world.

Example: Advertisements on Facebook, Twitter etc which are foreign Companies

Equalization Levy, Are you e-Commerce Selling in India ? EZTax.in
Equalization Levy, Are you e-Commerce Selling in India ? EZTax.in

Taxation Issues relating to e-Commerce

The new business models (e-Commerce) have created new tax challenges. The issues relating to e commerce are

  • Difficulty in characterizing the nature of payment and establishing the link between taxable transaction, activity and a taxing jurisdiction.
  • The difficulty of locating the transaction, activity and identifying the tax payer for income tax purposes.

equalization levy of 6% of the amount of consideration for specified services

In order to address the above challenges, the Finance Act India, 2016 provides for an equalization levy of 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment in India, from a resident in India who carries out business or profession in India or from a non-resident having permanent establishment in India.

 

Specified Services under Equalization Levy

The following services are covered under Specified Services (not a comprehensive list but to get the idea), few of them are referred indirectly as on today

  • Online Advertisement
  • Any provision for digital advertising space or any other facility or service for the online Advertisement
  • downloadable e-books / PDFs,
  • e-Commerce transactions,
  • online news reading,
  • online search engine and mapping services
  • online software (SaaS) or downloadable applications
  • Any other service as may be notified by the Central Government

Rate of Tax: The rate of Equalization Levy is 6% on the amount of consideration

Threshold Limit: Equalization levy is deductible if the aggregate amount of consideration for specified service in a previous year exceeds Rs 1 Lakh

Time period for remittance: The Equalization levy deducted should be paid to the credit of Central Government by the 7th of the month immediately following the said calendar month. Payment should be done in Challan-285

Example: Equalization levy for the month of march should be deposited on or before 7th April

Furnishing of Annual and Revised Statements: The statement of specified service is required to be furnished electronically in Form No.1 on or before 30th June immediately following that Financial Year.

Example: For the FY 2018-19, the annual return in form 1 needs to be filed on or before 30th June 2019.

If there are omissions or wrong particulars in the original Annual Statement, the assessee can file the revised statement at any time before the expiry of 2 years from the end of the Financial Year

 Consequences of Failures

  • Failure to remit the equalization levy within due date: A penalty of Rs 1000 per day during which the failure continues is levied. However, such penalty shall not exceed the amount of equalization levy.
  • Penalty for failure to furnish statement: If the assesse fails to furnish the statement within due date or within 30 days from the date of service of notice by the Assessing Officer, penalty of Rs 100 per day during which such failure continues is leviable
  • Punishment for False Statements: If a person makes a false statement in any verification or delivers an account or statement which is false or he either believes to be false, he shall be punishable with imprisonment for a term which may extend to 3 years and with fine

 

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