We are living in a world where information and communication technology is changing rapidly. This has resulted into new business models where goods and services are being supplied in virtual world. Business are being conducted in digital domain and thereby dissolving the link between an income producing activity and a specific location.
These new business models are creating new tax challenges. Governments are using the physical presence based permanent establishment (PE) rules. With these rules it is very difficult to establish a nexus between a transaction and its taxable jurisdiction.
Considering the potential of new digital economy and the rapidly evolving nature of business operations it is found essential to address the new challenges in terms of taxation of these digital transactions.
To address these challenges finance act 2016 has introduced a new tax called “Equalisation Levy”. Chapter VIII of Finance Act 2016 (Clause 160 to 177) contains the provision in this regard.
CHARGING OF EQUALISATION LEVY
CHARGING OF EQUALISATION LEVY [CLAUSE 162(1)]
There shall be charged an equalisation levy at the rate of 6% 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 PE in India.
MEANING OF SPECIFIED SERVICE [CLAUSE 161(I)]
“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
EXCEPTION TO CHARGING [CLAUSE 162(2)]
Equalisation levy u/s 162(1) shall not be charged, where––
a. Non-resident providing the specified service has a PE in India AND the specified service is effectively connected with such PE
b. 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 PE in India, does not exceed Rs. 1 Lakh
c. Where the payment for the specified service by the person resident in India, or the PE in India is not for the purposes of carrying out business or profession.
COLLECTION AND RECOVERY PROCEDURE
DEDUCTION AND PAYMENT LIKE TDS [CLAUSE 163]
Every resident person carrying on business or profession and every non resident having PE in India shall deduct the Equalisation Levy @ 6% from amount paid or payable to Non resident.
He shall further be liable to pay the amount deducted during the each calendar month to the credit of central govt before the 7th day of succeeding month.
Person shall remain liable to pay even if he fails to deduct the equalisation levy as aforesaid.
INTEREST IN DELAYED PAYMENT [CLAUSE 167]
Interest is to be paid @ 1% for every month or part of the month on such levy for the period of delay in crediting such amount to the credit of central government.
PENALTY FOR FAILURE TO DEDUCT OR TO PAY [CLAUSE 168]
- Penalty for Non deduction- A penalty equal to amount required to be deducted
- Penalty for non payment Rs. 1000/Day for period of failure subjected to maximum of amount required to be deducted.
ANNUAL RETURN OF SPECIFIED SERVICES
FURNISHING, PROCESSING, RECTIFICATION [CLAUSE 164 TO 166]
Every assessee shall be required to furnish an annual return in respect of all specified service. Form and due date of return shall be prescribed by the rules
Above clause further contains the provision in respect of Processing of furnished statement, intimation of such processing, rectification of intimation etc.
PENALTY FOR FAILURE TO FURNISH STATEMENT [CLAUSE 169]
Rs. 1000/Day for period of failure
Other clause provide for the provisions related to Appeal to CIT(A) and ITAT, Punishment and prosecution, power to make rules and to remove difficulty.
AMENDMENTS IN INCOME TAX ACT IN RELATION TO EQUALISATION LEVY
INSERTION OF SECTION 10(50) OF SECTION 10
It provides for the exemption of any income arising from specified services.
INSERTION OF SECTION 40(a)(ib)
It provides for disallowance of expenses on specified services if assessee fails to deduct “equalisation levy” or fails to pay after deduction before due date of ROI u/s 139(1)
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