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Introduction

India first introduced an equalisation levy in 2016, when it charged 6 percent of consideration for online advertisement services, earned by non-residents from an Indian resident carrying on a business.

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.

The 2020 Budget substantially extended the scope of the equalisation levy. Besides taxing online advertisement services, it was also levied on the consideration received by e-commerce operators crossing the prescribed threshold, for supplies to Indian residents, persons using an Indian IP address, and non-residents in certain cases.

Section 163: Extent, Commencement & Application

  1. This Chapter extends to the whole of India except the State of Jammu and Kashmir.
  2. It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
  3. It shall apply to consideration received or receivable for specified services provided on or after the commencement of this Chapter, and to consideration received or receivable for e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2020.

Provided that the consideration received or receivable for specified services and for e-commerce supply or services shall not include the consideration, which are taxable as royalty or fees for technical services in India under the Income-tax Act, read with the agreement notified by the Central Government under section 90 or section 90A of the said Act.

A Brief On Equalisation Levy

Logic of proviso

No double Taxation should be there once as royalty or fees for technical services and again as the Equalisation levy.

Logic of Amendment in FA 2020 for E-Commerce transactions

BEPS Action Plan 1 is not implemented therefore through unilateral act India implemented equalisation levy on e-commerce transactions so that the Indian government should not suffer from erosion in tax base.

Section 164: Definitions

In this Chapter, unless the context otherwise requires,-

(a) “Appellate Tribunal" means the Appellate Tribunal constituted under section 252 of the Income-tax Act;

(b) "Assessing Officer" means the Income-tax Officer or Assistant Commissioner of Income-tax or Deputy Commissioner of Income-tax or Joint Commissioner of Income-tax or Additional Commissioner of Income-tax who is authorised by the Board to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Chapter;

(c) "Board" means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963.

(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;

(cb) "e-commerce supply or services" means—

  • 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 activities listed in clause (i), (ii) or clause (iii);

For the purposes of this clause, "online sale of goods" and "online provision of services" shall include one or more of the following online activities, namely:—

  • acceptance of offer for sale; or
  • placing of purchase order; or
  • acceptance of the purchase order; or
  • payment of consideration; or
  • supply of goods or provision of services, partly or wholly;

Crux of Clause (ca) & (cb)

First check that whether covered under e-commerce operator definition or not.

If covered under e-commerce operator definition then check the definition of online goods or services.

If any of the activities mentioned in the definition of Online sale of goods or services then the sale will be treated as online sale of goods or online provision of services as the case may be.

  • "equalisation levy" means the tax leviable on consideration received or receivable for any specified service or e-commerce supply or services under the provisions of this Chapter;
  • "Income-tax Act" means the Income-tax Act, 1961.
  • "online" means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network;
  • "permanent establishment" includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;
  • "prescribed" means prescribed by rules made under this Chapter;
  • "specified service" 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;
  • Words and expressions used but not defined in this Chapter and defined in the Income-tax Act, or the rules made thereunder, shall have the meanings respectively assigned to them in that Act.

Section 165: Charge of EL on Specified Services

(1) On and from the date of commencement of this Chapter, there shall be charged an equalisation levy at the rate of six per cent of the amount of consideration for any specified service received or receivable by a person, being a non-resident from—

  • A person resident in India and carrying on business or profession; or
  • A non-resident having a permanent establishment in India.

(2) The equalisation levy under sub-section (1) shall not be charged, where—

  • The non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment;
  • The aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident

From a person resident in India and carrying on business or profession, or

From a non-resident having a permanent establishment in India, does not exceed one lakh rupees; or

  • Where the 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.

• Service provider = Non Resident

• Service Recipient = Resident in India and Carrying business or profession

• Amount of Consideration exceeding Rs 1 Lakhs in a P.Y.

• Services used in India for carrying out business or profession.

6% of amount of consideration received or receivable.

• Service provider = Non Resident

• Service Recipient = Another Non Resident having PE in India.

• Amount of Consideration exceeding Rs 1 Lakhs in a P.Y.

• Services used in India for carrying out business or profession.

6% of amount of consideration received or receivable.

Section 165A: Charge of equalisation levy on e-commerce supply of services (Applicable w.e.f 01/04/2020)

(1) On and from the 1st day of April, 2020, there shall be charged an equalisation levy at the rate of two per cent. of the amount of consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated by it—

  • To a person resident in India; or
  • To a non-resident in the specified circumstances as referred to in sub-section (3); or
  • To a person who buys such goods or services or both using internet protocol address located in India.

(2) The equalisation levy under sub-section (1) shall not be charged—

  • where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment;
  • where the equalisation levy is leviable under section 165; or
  • sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated as referred to in sub-section (1) is less than two crore rupees during the previous year.

EL Applicability

Rate of EL

• Service provider/Seller of goods = Non Resident E-Commerce Operator (E-commerce supply or services)

• Service Recipient/ Buyer of goods = Resident in India.

• Sales/Turnover/gross receipts of E- commerce operator exceeding Rs 2 crore During P.Y.

• EL not leviable under section 165

2% of amount of consideration received or receivable.

• Service provider/Seller of goods = Non Resident E-Commerce Operator (E-commerce supply or services)

• Service Recipient/Buyer of goods = Non Resident in specified circumstances covered in sub-rule (3).

• Sales/Turnover/gross receipts of E- commerce operator exceeding Rs 2 crore during P.Y.

• EL not leviable under section 165

2% of amount of consideration received or receivable.

• Service provider/Seller of goods = Non Resident E-Commerce Operator (E-commerce supply or services)

• Service Recipient/Buyer of goods = Person (Resident/Non resident) using IP address of India.

• Sales/Turnover/gross receipts of E- commerce operator exceeding Rs 2 crore during P.Y.

• EL not leviable under section 165

2% of amount of consideration received or receivable

 

3. (a) Specified Circumstances means:

  • Sale of advertisement, which targets a customer, who is resident in India or

A customer who accesses the advertisement though 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.

(b) Consideration received or receivable from e-commerce supply or services shall include—

  • Consideration for sale of goods irrespective of whether the e-commerce operator owns the goods, so, however, that

It shall not include consideration for sale of such goods which are owned by a person resident in India or by a permanent establishment in India of a person non-resident in India, if sale of such goods is effectively connected with such permanent establishment.

 

Crux of Subsection (3)(b)(i)

Sometime E- commerce operator is not owner of the goods and sell goods as a mediator then that consideration also be considered.

But if Owner of the goods is a person resident in India & E-commerce operator sell those goods as mediator then that consideration should not be considered.

  • consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator, so, however, that it shall not include consideration for provision of services which are provided by a person resident in India or by permanent establishment in India of a person non-resident in India, if provision of such services is effectively connected with such permanent establishment.

Crux of Subsection (3)(b)(ii)

Sometime E-commerce operator is not providing or facilitating service by own but as a mediator then that consideration also be considered.

But if provider of services is a person resident in India & E-commerce operator works as a mediator then that consideration should not be considered.

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