Equalisation Levy
The author is member of the Institute. He can be reached at darjironak9@yahoo.com and eboard@icai.in.
1. Genesis, Concept & Scope Expansion of Equalisation Levy
Equalisation levy also called “Google Tax” is tax levied globally on certain income earned digitally by the non-resident. It is proposed that a person making payment to non-resident (where non-resident does not have a Permanent Establishment (PE) in India) for specified services and such payment exceeds the prescribed limit, then in such a case, a person is required to deduct the tax at the prescribed rate under equalisation levy.
Further, the Finance Minister in her budget speech, while introducing The Finance Bill, 2020, amended the provisions relating to Equalisation Levy to widen the scope of equalisation levy. It is proposed that a person received service from e-commerce operator (where e-commerce operator being non-resident person, does not have a Permanent Establishment (PE) in India) for supply or services, an e-commerce operator is required to deduct and pay the tax at the prescribed rate under equalisation levy. So, considering the above, let us understand the provisions one by one…
Statutory Dates of Applicability
Notified via CBDT notification dated 27th May 2016 (Chapter VIII of Finance Act, 2016).
Notified via CBDT notification dated 28th October 2020 (widened scope under Finance Act, 2020).
Territorial Extent: Provisions relating to the equalisation levy extends to the whole of India except the state of Jammu and Kashmir. Further, equalisation levy under section 165 is only applicable for Business-to-Business (B2B) transactions.
2. Statutory Definitions under Chapter VIII of Finance Act, 2016
Equalisation levy is defined under section 164(d) of the Finance Act, 2016. Equalisation levy means the tax leviable on consideration received or receivable for any specified services or e-commerce supply or service. The key statutory terms are defined below:
Specified Services [Section 164(i)]
This includes:
- Online Advertisement;
- Any provision for digital advertising spaces or any other facility or service for the purpose of online advertisement;
- Any other service as may be notified by the Central Government.
E-Commerce Supply or Service [Section 164(cb)]
This covers:
- Online sale of goods owned by the e-commerce operator; or
- Online provision of services provided by the e-commerce operator; or
- Online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
- Any combination of (1), (2), or (3) above.
E-Commerce Operator [Section 164(ca)]
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.
3. Charging Section 165: Equalisation Levy @ 6% on Specified Services
Charging section of equalisation levy on specified services is given under section 165 of the Finance Act, 2016. Equalisation levy must be levied at the rate of 6% of the amount of consideration for specified services (Rule 3 of Equalisation Levy Rules, 2016).
Conditions to Levy Equalisation Levy for Specified Services:
- Service provider should be a non-resident.
- Service provider should not have a permanent establishment in India. If service provider has a permanent establishment in India, but such services are not effectively connected with such permanent establishment in India.
- Service receiver may be a resident person in India or non-resident person having a permanent establishment in India.
- Service receiver received the specified services.
- Service receiver should use the specified services for carrying on business and profession only.
- Service receivers make payment to non-resident in excess of Rs. 1,00,000/- during a year.
Withholding Responsibility: If all the above-mentioned conditions are satisfied, then in such a case, a person making payment is required to deduct the equalisation levy @ 6% of amount of consideration for specified services. In simple terms, liability to deduct and pay to the credit of the Central Government shall be on the person paying to the non-resident.
Non-Applicability of Equalisation Levy on Specified Services:
The provisions relating to equalisation levy are not applicable if any one of the following conditions is satisfied:
- Service provider is a non-resident but has a permanent establishment in India and services provided by him are effectively connected with such permanent establishment in India.
- Service receiver has taken specified services not for the purpose of carrying on business and profession.
- Service receivers made payment to non-resident below the amount of Rs. 1,00,000 during a year.
4. Charging Section 165A: Equalisation Levy @ 2% on E-Commerce Supply or Services
Charging section of equalisation levy on e-commerce supply or services is given under section 165A of the Finance Act, 2016 (introduced by Finance Act, 2020). Equalisation levy must be levied at the rate of 2% of the amount of consideration received or receivable from e-commerce supply or service.
Conditions to Levy Equalisation Levy (Section 165A):
- Service provider should be a non-resident.
- Service provider should not have a permanent establishment in India. If service provider has a permanent establishment in India, but such services are not effectively connected with corresponding permanent establishments in India.
- Service provider has sales, turnover or gross receipt from e-commerce supply or service in the previous year of Rs. 2 crores or more.
- Service receiver may be:
- A resident person in India; or
- A non-resident person in the specified circumstances*; or
- A person who buys goods or services or both, using an internet protocol (IP) address located in India.
- Service receiver received the service from an e-commerce supply or services.
Direct Payment Responsibility: If all the above-mentioned conditions are satisfied, then in such a case, an e-commerce supply or service operator is required to deduct the equalisation levy @ 2% of amount of consideration for e-commerce supply or services. Simply put, liability to deduct and pay to the credit of the Central Government shall be on the non-resident e-commerce service or supply operator.
*Specified Circumstances under Section 165A:
- Sale of advertisement, which targets a customer who is resident in India or a customer who accesses the advertisement through internet protocol address located in India; and
- Sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India.
Non-Applicability of Equalisation Levy on E-Commerce Supply or Services:
The provisions relating to equalisation levy under section 165A are not applicable in following cases:
- Service provider is a non-resident person but has permanent establishment in India and such services provided by him are effectively connected with such permanent establishment in India.
- Service provider has sales, turnover or gross receipt from e-commerce supply or service in the previous year which is less than Rs. 2 crores.
- Equalisation levy is applicable as per section 165 of the Finance Act, 2016 (i.e. already taxed as specified services).
Note: If any one of the above conditions is satisfied, section 165A is not applicable, but section 165 may apply if its respective conditions are satisfied.
5. Procedural Mechanisms & Compliance Timelines (Sections 166 & 166A)
Section 166: Deduction & Payment (Specified Services)
- Deductor: Resident carrying on business/profession or non-resident with Indian PE.
- Rounding Off: Consideration, levy, interest, penalty, and refund rounded off to nearest multiple of ten rupees (Rule 3).
- Monthly Remittance Due Date: By the 7th of the month following the calendar month.
- Payment Mode: Remitted into RBI, SBI, or authorized bank via Challan No. 285 (ITNS 285) (Rule 4).
- Failure to Deduct: Notwithstanding failure to deduct, person remains liable to pay levy to Central Government by the 7th of the following month.
Section 166A: Payment (E-Commerce Supply or Services)
- Payer: Non-resident e-commerce operator without PE in India.
- Rounding Off: Rounded off to nearest multiple of ten rupees (Rule 3 as amended by Amendment Rules, 2020).
- Quarterly Due Dates: Paid quarterly as prescribed in the schedule below.
- Payment Mode: Remitted into RBI, SBI, or authorized bank accompanied by Equalisation Levy Challan No. 285 (Rule 4).
Quarterly Payment Schedule for E-Commerce Operators (Section 166A)
| Sr. No. | Date of Ending of the Quarter of Financial Year | Due Date of Payment |
|---|---|---|
| 1 | 30th June | 7th July |
| 2 | 30th September | 7th October |
| 3 | 31st December | 7th January |
| 4 | 31st March | 31st March (Same Day) |
6. Statements, Processing & Rectification (Sections 167–169)
Section 167: Furnishing of Statement (Form No. 1)
An assessee or e-commerce operator shall furnish a statement electronically under digital signature or electronically through electronic verification code in Form No. 1, on or before 30th June immediately following that financial year (Rule 5 of Equalisation Levy Rules, 2016 as amended by Amendment Rules, 2020).
COVID Extension Note: The deadline for furnishing Form 1 for FY 2020-2021 was extended by CBDT via Circular No. 15/2021 dated 03rd August 2021 to 31st August 2021.
Belated / Revised Statement: If not furnished by 30th June, or for any omission or wrong particulars, a revised statement can be filed at any time before the expiry of two years from the end of the financial year in which the specified service was provided or e-commerce supply/service was made or provided or facilitated.
Statutory Notice by AO: If an assessee or e-commerce operator fails to furnish the statement, the assessing officer has been empowered to issue notice. Such statement must be furnished within 30 days from the date of serving of such notice (Rule 6).
Section 168: Processing of Statement (Form No. 2 Intimation)
A statement furnished under section 167 shall be processed by the assessing officer. If amount is payable or refundable, it shall be communicated or intimated to an assessee or e-commerce operator. Intimation issued after processing of statement shall be deemed to be a notice of demand.
Where any equalisation levy, interest, or penalty is payable after processing of statement, such intimation shall be issued in Form 2. However, no such intimation shall be sent after the expiry of one year from the end of the financial year in which the statement or revised statement is furnished.
Section 169: Rectification of Mistake
For any mistake apparent from the record, the assessing officer may amend any intimation issued under section 168 within one year from the end of the financial year in which the intimation sought to be amended was issued. Assessing officer may amend the intimation either suo motu or on any mistake brought to his notice by an assessee or e-commerce operator. Before amending the intimation, the assessing officer shall give the assessee or e-commerce operator a reasonable opportunity of being heard.
7. Interest, Penalties & Prosecution (Sections 170–173, 176)
Section 170: Interest on Delayed Payment
Assessee or e-commerce operator has deducted the equalisation levy but fails to pay to the credit of the Central Government within the prescribed time limit mentioned under section 166 and 166A of the Finance Act, 2016, in such a case, assessee or e-commerce operator must pay simple interest at the rate of 1% of such levy for every month or part of the month.
Section 171: Penalties for Failure to Deduct or Pay Equalisation Levy
Section 172: Penalty for Failure to Furnish Statement
An assessee or e-commerce operator fails to furnish the statement (Form 1) as per section 167 of the Finance Act, 2016: penalty of Rs. 100 for each day is levied during which the failure continues.
Section 173: Relief When Penalty Cannot be Imposed
No penalty under section 171 or section 172 shall be imposed if the assessee or e-commerce operator proves to the assessing officer that there was reasonable cause for such failure. No penalty order shall be passed without giving a reasonable opportunity of being heard.
Section 176: Prosecution & Punishment for False Statement
If a person makes a false statement or delivers an account or statement, which is false, and which he either knows or believes to be false, then in such a case, assessee or e-commerce operator shall be punishable with imprisonment for a term which may extend to three years and with fine.
8. Appellate Mechanisms (Sections 174 & 175)
Section 174: Appeal to Commissioner of Income-tax (Appeals)
- Aggrieved Party: Assessee or e-commerce operator aggrieved by order of Assessing Officer.
- Limitation Period: Within 30 days from the date of receipt of the order of Assessing Officer.
- Prescribed Form: Appeal shall be filed in Form 3.
- Prescribed Fee: Accompanied by a fee of Rs. 1,000/-.
- Filing Mode: Filed electronically using digital signature or electronic verification code (EVC).
Section 175: Appeal to Appellate Tribunal (ITAT)
- Aggrieved Party: Assessee, e-commerce operator, or the Commissioner of Income-tax aggrieved by order of CIT (Appeals).
- Limitation Period: Within 60 days from the date of receipt of the order of CIT (Appeals).
- Prescribed Form: Appeal shall be filed in Form 4.
- Prescribed Fee: Accompanied by a fee of Rs. 1,000/-.
- Filing Mode: Filed electronically using digital signature or electronic verification code (EVC).
Conclusion
There has been a substantial increase in the digital activity in India. Every individual, as well as corporate, is in receipt of some digital service provided by non-resident entities. However, the revenue generated by virtue of said services remains untaxed. To address the said problem, the Finance Minister introduced the concept of Equalization levy in the year 2016. With the introduction of such concept, untaxed income of non-residents can be properly taxed in India.