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Equalisation Levy was introduced in India in 2016 via Chapter VIII of the Finance Act 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India. It is aimed at taxing business to business transactions.

Why Equalisation Levy?

Over the last decade, Information Technology has gone through an exponential expansion phase in India and globally. This has led to an increase in the supply and procurement of digital services. Consequently, this has given rise to various new business models, where there is a heavy reliance on digital and telecommunication networks.

As a result, the new business models have come with a set of new tax challenges in terms of nexus, characterization and valuation of data and user contribution. The combination of inadequacy of physical presence-based nexus rules in the existing tax treaties and the possibility of taxing such payments as royalty or fee for technical services creates a fertile ground for tax disputes.

All about Equalisation Levy

Applicable to following:

Equalisation Levy is a direct tax and same like TDS, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy:

  • The payment should be made to a non-resident service provider;
  • The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

Not applicable to Following:

  • The annual payment made to one service provider less than Rs. 1,00,000 in one financial year.
  • Service receiver or deductor register in J&K.
  • Payer having PE in India.
  • Service other than special services mention in list.

Services cover under Equalisation Levy:

  • Online advertisement;
  • Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;
 

As and when any other services are notified will be included with the aforesaid services.

Tax rate under Equalisation Levy:

Currently the applicable rate of tax is 6% of the gross consideration to be paid.

 

Due date of payment:

To be deposited to before 7th of next month, means if you deducted Equalisation leavy on April 2020 you need to deposit the same on or before 7th of next month.

Due date of furnishing Equalisation Levy Statement (Form-1) is on or before 30th June of Financial Year ended. This is the annual statement.

Consequences:

Equalisation Levy not deducted: Penalty equal to the amount of levy failed to be deducted (along with interest and depositing of the principal levy outstanding).

Equalisation Levy deducted but not deposited: Penalty equal to INR 1,000/day subject to the maximum of the levy failed to be deducted (along with interest and depositing of the principal levy outstanding).

Disallowance of such expenditure in the hands of the payer (unless the defect is rectified).

Penalty for fail to file statement INR 100/day for each day the non-compliance continues.

Prosecution for false statement has been filed then the person may be subjected to imprisonment of a term up to 3 years and a fine.

The author can be reached at manish.savalkar@gmail.com


  

Published by

Manish Shashikant Savalkar
(Audit Executive)
Category Income Tax   Report

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