EQUALISATION LEVY            

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Context:

• Equalisation levy (EL) imposed by India on the supply of services by multinational enterprises, is a sovereign right to tax revenues earned from operations in the country- Finance Ministry.

About:

• Equalization Levy (EL) is a tax leviable on consideration received by a non-resident for specified services.
• Equalisation Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.
• Equalization Levy is imposed under the Finance Act 2016 and not as a part of the Indian Income Tax Act, 1961.
• It is aimed at taxing business to business (B2B) transactions.

Applicability of Equalisation Levy:

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

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

As per Sec 165 of Finance Act 2016, a person resident in India or a non-resident having a permanent establishment in India shall deduct EL at 6% on the consideration paid to non-resident towards specified services.

Services Covered Under Equalisation Levy:

Currently, not all services are covered under the ambit of equalisation Levy. The following services covered:

1. Online advertisement
2. 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.

EL (EQUALIZATION LEVY) 2.0:

• The Finance Act, 2020 expanded the scope of the EL to include all non-resident e-commerce operators providing ‘e-commerce supply or services.
• As per the expanded provisions, with effect from 01 April 2020, a non-resident e-commerce operator is liable to pay Equalization Levy at the rate of 2% on the consideration received/receivable from e-commerce supply or services.

Salient Features of (Equalization Levy ) EL 2.0:

• The Equalization levy 2.0 does not apply to transactions already covered by the Equalization Levy under Finance Act 2016.
• Thus, services such as online advertisement, provision of digital space for online advertising, or related services are not subject to EL 2.0.
• EL 2.0 is applicable on the online sale of goods or online provision of services or a combination of both by the non-resident e-commerce operator.
• EL 2.0 is applicable where non-resident e-commerce operators supply to

(a) person resident in India

(b) Person using an Indian IP address

(c) Non-resident in specific cases.

• Examples of specific cases where supply to a non-resident is subject to equalization levy are

(a) sale of advertisement to non-resident and such advertisement target Indian Resident

(b) sale of data to non-resident and the data targets Indian residents.

• The EL 2.0 shall be levied only if the aggregate amount of consideration for such specified services received in a previous year exceeds Rs. 2 crores.
• EL 2.0 is charged at the rate of 2% on the amount of consideration received/receivable by the non-resident.
• The non-resident e-commerce operator is liable for deposit the EL amount to the Government treasury & comply with the statutory requirements viz. the filing of EL return, etc. Thus, the onus of compliance cast on the non-resident e-commerce operator.
• EL 2 is not applicable where E-commerce operator has a Permanent Establishment in India and the e-commerce supplies or services are effectively connected with such Permanent Establishment.

E-Commerce Operator:

• E-Commerce operator means a non-resident, who owns, operates, or manages a digital platform or electronic facility for online sale of goods or online provision of services, or both.

E-Commerce Supplies / Services:

1. Equalization Levy 2.0 applies to the following specified E-Commerce supplies or services
2. Online sale of goods owned by the e-commerce operator; or
3. Online provision of services provided by the e-commerce; or
4. Online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
5. Any combination of the above-mentioned activities.

CLARIFICATIONS VIDE FINANCE ACT 2021:

• The Finance Act 2021 increased the scope of E-Commerce supply substantially for Equalization Levy purposes.
• It is clarified that e-commerce supply shall include one or more following activities undertaken online-

(a)acceptance of offer for sale

(b) placing of purchase order

(c) acceptance of purchase order

(d) payment of consideration

(e) supply of goods or provision of services, partly or wholly.

• The Finance Act 2021 has expanded the scope of Equalization Levy and bringing an array of business within its ambit.
• The equalization levy can now be levied on payment portals, takeaway sales, and other predominantly off-line businesses that require physical presence but allow online booking like travel, theatre experiences, or hotel stays.
• Now, e-commerce operators are to calculate equalization levy as a percentage of the entire consideration for supply collected by them, as opposed to the commission accruing to them. Thus, the levy would apply even where e-commerce operators do not charge a commission.

https://indianexpress.com/article/business/equalisation-levy-a-sovereign-right-not-a-unilateral-measure-fm-7805680/