Finance act 2016 has introduced Equalization levy to address challenges of the “digital economy” on the amount of consideration received by non-resident for any specified services. The levy would fall under a separate self contained code and would not form part of Income Tax Act’ 1961.
However, the provisions of sections 120, 131, 133A, 138, 156, Chapter XV and sections 220 to 227, 229, 232, 260A, 261, 262, 265 to 269, 278B, 280A, 280B, 280C, 280D, 282 and 288 to 293 of the Income-tax Act shall so far as may be, apply in relation to equalisation levy, as they apply in relation to income tax.
As the Equalization Levy is imposed on the gross amount of transaction, and not on the income arising from such transaction, it is applicable irrespective of whether any income arising from the transaction is taxable in India or not.
“Equalization Levy is determined with reference to the gross amount of the payment and the rate of Equalization Levy applicable on it, which is a full and final tax”
At a Glance
- EQUALISATION LEVY has been defined as ‘tax leviable on consideration received or receivable for any specified services under the provisions of this chapter.’
- SPECIFIED SERVICES, as per clause (i) of section 164 of Finance Act’ 2016, means:
- online advertisement,
- any provision for digital advertising space or any other facility or service for the purpose of online advertisement; and
- any other service as may be notified by the Central Government in this behalf;
CHARGE AND COLLECTION
Equalization levy shall be charged at the rate of 6 per cent of the amount of consideration received by a non-resident for specified services provided to:
- a resident in India; or
- a non-resident having a permanent establishment in India.
However, the same shall not be chargeable where:
- the non-resident providing the specified service has a permanent establishment in India;
- aggregate amount of consideration for specified service received or receivable in a previous year doesn’t exceed ₹ 1,00,000/-
- the payment for the specified service is not for the purposes of carrying out business or profession.
The assessee shall deduct the equalisation levy from the amount paid/ payable to the non-resident service provider at the rate of 6% if the aggregate amount of consideration for the specified service in a previous year exceeds ₹ 100,000/- The same shall be deposited to the credit of the government by 7th of the month immediately following the calendar month in which the amount is so deducted.
Interest U/s 170: @ 1% for every month or part thereof.
Penalty U/s 171:
1. in case the assessee fails to deduct the whole or any part of the equalisation levy, a penalty equal to the amount of equalisation levy that he failed to deduct; &
in case the assessee having deducted the equalisation levy, fails to pay such levy to the credit of the Central Government, a penalty of ₹ 1,000/- for every day during which the failure continues. However, the penalty under this clause shall not exceed the amount of equalisation levy that he failed to pay.
PRESCRIBED STATEMENT
Assessee shall, within the prescribed time after the end of each financial year, furnish a statement, in respect of all specified services during such financial year. Sub rule (2) of Rule 5 of Equalisation Levy Rules’ 2016 requires such statement in Form 1 (notified) to be furnished on or before the 30th June immediately following that financial year.
Assessee who has not furnished the statement or having furnished a statement, notices any omission or wrong particular therein, may furnish a statement or a revised statement, as the case may be, at any time before the expiry of 2 years from the end of the financial year in which the specified service was provided.
Assessee fails to furnish the statement within the time prescribed, he shall be liable to pay a penalty of ₹ 100 for each day during which the failure continues.
The statement made under section 167 by the assessee shall be processed U/s 168 and an intimation be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, him.
Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is furnished.
APPEALS
Any assessee aggrieved by an order imposing penalty may appeal to the CIT (Appeals) within a period of 30 days from the date of receipt of the order of the Assessing Officer. The provisions of sections 249 to 251 of the Income-tax Act shall, as far as may be, apply to such appeal. (Sec 174)
An assessee aggrieved by an order made by the CIT (Appeals) under section 174 may appeal to the ITAT against such order within 60 days from the date on which the order sought to be appealed against is received by the assessee. The provisions of sections 253 to 255 of the Income-tax Act shall, as far as may be, apply to such appeal.
The Central Government, vide Notification No. 37/2016 dated 27.05.2016, has appointed 01.06.2016 as the date on which Chapter VIII (Equalisation Levy) of Finance Act’ 2016 shall come into force. Further the CBDT, vide Notification No. 38/2016 dated 27.05.2016, has notified Equalisation Levy Rules’ 2016.
Relevant Extracts of Finance Act 2016
Chapter VIII (Equalisation Levy)
Section 165: Charge of Equalisation Levy
1. On and from the date of commencement of this Chapter, there shall be charged an equalisation levy at the rate of 6 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 ₹ 100,000; 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.
Section 166: Collection & Recovery of equalisation levy
1. Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India (hereafter in this Chapter referred to as assessee) shall deduct the equalisation levy from the amount paid or payable to a non-resident in respect of the specified service at the rate specified in section 165, if the aggregate amount of consideration for specified service in a previous year exceeds ₹ 100,000/-
2. The equalisation levy so deducted during any calendar month in accordance with the provisions of sub-section (1) shall be paid by every assessee to the credit of the Central Government by the 7th day of the month immediately following the said calendar month.
3. Any assessee who fails to deduct the levy in accordance with the provisions of sub-section (1) shall, notwithstanding such failure, be liable to pay the levy to the credit of the Central Government in accordance with the provisions of sub-section (2).
Section 170: Interest on Delayed payment of equalisation levy
Every assessee, who fails to credit the equalisation levy or any part thereof as required u/s 166 to the account of the Central Government within the period specified in that section, shall pay simple interest at the rate of 1% of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed.
Section 171: Penalty for failure to deduct or pay equalisation levy
Any assessee who-
1. Fails to deduct the whole or any part of the equalisation levy as required u/s 166; or
2. Having deducted the equalisation levy, fails to pay such levy to the credit of the Central Government in accordance with the provisions of sub-section (2) of that section, shall be liable to pay-
- in the case referred to in clause (a), in addition to paying the levy in accordance with the provisions of sub-section (3) of that section, or interest, if any, in accordance with the provisions of section 170, a penalty equal to the amount of equalisation levy that he failed to deduct; &
- in the case referred to in clause (b), in addition to paying the levy in accordance with the provisions of sub-section (2) of that section and interest in accordance with the provisions of section 170, a penalty of ₹ 1,000/- for every day during which the failure continues. However, that the penalty under this clause shall not exceed the amount of equalisation levy that he failed to pay.
Section 167: Furnishing of Statement
1. Every assessee shall, within the prescribed time after the end of each financial year, prepare and deliver or cause to be delivered to the Assessing Officer or to any other authority or agency authorised by the Board in this behalf, a statement in such form, verified in such manner and setting forth such particulars as may be prescribed, in respect of all specified services during such financial year.
2. An assessee who has not furnished the statement within the time prescribed under sub-section (1) or having furnished a statement under sub-section (1), notices any omission or wrong particular therein, may furnish a statement or a revised statement, as the case may be, at any time before the expiry of two years from the end of the financial year in which the specified service was provided.
3. Where any assessee fails to furnish the statement under sub-section (1) within the prescribed time, the Assessing Officer may serve a notice upon such assessee requiring him to furnish the statement in the prescribed form, verified in the prescribed manner and setting forth such particulars, within such time, as may be prescribed.
Section 172: Penalty for failure to furnish Statement
Where an assessee fails to furnish the statement within the time prescribed under sub-section (1) or sub-section (3) of section 167, he shall be liable to pay a penalty of ₹ 100 for each day during which the failure continues.
Section 168: Processing of Statement
1. Where a statement has been made under section 167 by the assessee, such statement shall be processed in the following manner, namely:–
a. the equalisation levy shall be computed after making the adjustment for any arithmetical error in the statement;
b. the interest, if any, shall be computed on the basis of sum deductible as computed in the statement;
c. the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the amount computed under clause (b) against any amount paid under sub-section (2) of section 166 or section 170 and any amount paid otherwise by way of tax or interest;
d. an intimation shall be prepared and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, him under clause (c); &
e. the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to him:
Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is furnished.
2. For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of such statements to expeditiously determine the tax payable by, or the refund due to, the assessee as required under that sub-section.
Section 174: Appeal to CIT (Appeals)
1. An assessee aggrieved by an order imposing penalty under this Chapter, may appeal to the Commissioner of Income-tax (Appeals) within a period of thirty days from the date of receipt of the order of the Assessing Officer.
2. An appeal under sub-section (1) shall be in such form and verified in such manner as may be prescribed and shall be accompanied by a fee of one thousand rupees.
3.Where an appeal has been filed under sub-section (1), the provisions of sections 249 to 251 of the Income-tax Act shall, as far as may be, apply to such appeal.
Section 175: Appeal to ITAT
1. An assessee aggrieved by an order made by the Commissioner of Income-tax (Appeals) under section 174 may appeal to the Appellate Tribunal against such order.
2. The Commissioner of Income-tax may, if he objects to any order passed by the Commissioner of Income-tax (Appeals) under section 174, direct the Assessing Officer to appeal to the Appellate Tribunal against such order.
3. An appeal under sub-section (1) or sub-section (2) shall be filed within sixty days from the date on which the order sought to be appealed against is received by the assessee or by the Commissioner of Income-tax, as the case may be.
4. An appeal under sub-section (1) or sub-section (2) shall be in such form and verified in such manner as may be prescribed and, in the case of an appeal filed under sub-section (1), it shall be accompanied by a fee of one thousand rupees.
5. Where an appeal has been filed before the Appellate Tribunal under sub-section (1) or sub-section (2), the provisions of sections 253 to 255 of the Income-tax Act shall, as far as may be, apply to such appeal.
Section 176: Punishment for False statement
1. If a person makes a false statement in any verification under this Chapter or any rule made there under, or delivers an account or statement, which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine.
2. Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence punishable under sub-section (1) shall be deemed to be non-cognizable within the meaning of that Code.
Section 177: Institution of Prosecution
No prosecution shall be instituted against any person for any offence under section 176 except with the previous sanction of the CCIT.
Section 178
The provisions of sections 120, 131, 133A, 138, 156, Chapter XV and sections 220 to 227, 229, 232, 260A, 261, 262, 265 to 269, 278B, 280A, 280B, 280C, 280D, 282 and 288 to 293 of the Income-tax Act shall so far as may be, apply in relation to equalisation levy, as they apply in relation to income tax.
NOTE: CBDT has notified the following forms under Equalisation Levy Rules’ 2016:
- Form 1- Statement of Specified services.
- Form 2- Notice of Demand under Chapter VIII of Finance Act’ 2016.
- Form 3- Appeal to CIT (Appeals).
- Form 4- Appeal to ITAT.
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