Equalisation Levy

Budget 2016 has inserted a new chapter VIII in Income Tax Act, 1961. This relates to taxation on services of digital advertising from foreign companies like facebook, google etc. In addition to this new chapter, related sections have also been amended.

A brief on Chapter VIII – Equalisation Levy is as under:

Effective Date - June 1, 2016

Applicability - It applies on some specified services. Specified services means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf.

Equalisation levy of 6% shall be levied on the consideration payable to a non-resident by a person resident in India carrying business or profession or a non-resident having a permanent establishment in India.

Non-applicability -  Equalisation levy shall not be charged if:

i. non-resident providing specified services has a permanent establishment in India and specified service is effectively connected with such permanent establishment

ii. aggregate amount of consideration for specified service received or receivable in a previous year does not exceed one lakh rupees

iii. where payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession

Limit beyond which deduction of equalisation levy shall be mandatory

Payee (person resident in India carrying business or profession or non-resident having permanent establishment in India) shall deduct equalisation percentage from the amount payable to non-resident for specified services if amount of consideration is more than Rs. 1 lakh during the previous year.

Due date for payment of equalisation levy and consequences of non-payment/delay in payment/non-deduction

Just like deposit of TDS, payee shall deposit such equalisation amount to the credit of Central Government by 7th day of the month subsequent to the month in which payment is made

If payee has not deducted such equalisation levy then still he has to pay it to the Government within prescribed time limit.

Any delay in payment of equalisation levy shall require payment of interest @1% per month or part of the month till the date of payment equalisation levy.

No-deduction of equalisation levy or non-payment even after deduction shall invite levy of penalty u/s 171 of the Income Tax Act.

Filing of return/statement of equalisation levy and consequences of non-filing

A return/statement of equalisation is required to be filed in Form No. 1* (with digital signatures or through electronic verification code) by 30th June of financial year coming after this financial year.

Non-filing of statement/return of equalisation levy shall invite penalty and/or issue of notice by Assessing Officer requiring details on specified services on which equalisation levy.

*Source: Finance Bill 2016, Equalisation Levy Rules, 2016 notified via Notification No. S.O. 1905(E) dated May 27, 2016.