EQUALISATION LEVY

Existing Provisions:

 Equalisation Levy is governed by Chapter VIII of the Finance Act 2016 (Section 163 to
Section 180).

 It is levied on amount of consideration for any specified service received/ receivable by a

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

 Specified service has been defined in section 164 of the Act and "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.

 Rate of Equalisation levy is 6%

 Income leviable to Equalisation levy is exempt from tax under Income Tax Act.

 Equalisation Levy is not leviable in following cases:

Non-resident providing such service has permanent establishment in India and
such service is connected with permanent establishment.
The aggregate amount of consideration does not exceed Rs. 1 Lakh.
Purpose of payment is not for carrying on business or profession.

 Person making payment to non-resident needs to deduct equalisation levy from amount
paid/payable and deposit to Central Government by 7th of next month. (Section 166)

 Annual Statement of Specified Services in Form 1 to be submitted by 30th June of the

following year (For example, 30th June 2020 for FY 19-20 transactions).

 Revised Statement can be filed upto 2 years from the end of financial year in which
specified service is provided.

 Interest payable at the rate of 1% for every month or part of the month for delayed
payment.

 100% penalty if failed to deduct equalisation levy.

 Penalty of Rs. 1000 per day or amount of equalisation levy (whichever is lower), if levy
deducted but failed to deposit with government.

 Penalty of Rs. 100 for each day for failure to furnish Annual Statement (Form-1)

CA. Nitish Pruthi

+91- 9917314110, 6396736915
  Amount of Equalisation levy if not deducted or not paid on or before due date of filing
income tax return will be disallowed if under section 40(a)(ia) of Income Tax Act.

 Appeal to CIT (Appeals) possible against Penalty Order within 30 days of receipt of order
in Form-3. Fee for filing Appeal is Rs. 1000

 Similarly, Appeal to ITAT against order of CIT (Appeals) can be made by both assessee
as well as Commissioner within 60 days of date of receipt in Form-04.

 Punishment for false statement: Upto 3 years imprisonment (Non-bailable) and fine.

 No prosecution can be started without approval of Chief-CIT.

 Provisions of Section 120, 131, 133A, 138, 159 to 181, 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 applies to equalisation levy as well.

New Provisions by Finance Act 2020 (Applicable from 01 April 2020):

 Equalisation levy to be levied on consideration received/ receivable for e-commerce

supply or services.

 ‘e-commerce supply or services’ means following:

online sale of goods owned by the e-commerce operator
online provision of services provided by the e-commerce operator
online sale of goods or provision of services or both, facilitated by the e-commerce
operator
any combination of above

 E-commerce operator for this purpose means a non-resident who owns, operates or
manages electronic platform for supply of goods or provision of services.

 New section 165A inserted as charging section for Equalisation levy on e-commerce.

 Rate of levy will be 2% of consideration.

 Levy will be charged on supplies facilitated to-

Any person resident in India
Any person buying goods/ services/ both using IP address located in India.
A non-resident in following two circumstances:
 Sale of advertisements which targets Indian resident customers or customer
who access such advertisement through IP address in India.
 Sale of Data collected from Indian residents.

CA. Nitish Pruthi

+91- 9917314110, 6396736915
  Equalisation levy on E-commerce operators not to be levied in following cases:
Where e-commerce operator has Permanent Establishment in India.
Turnover of e-commerce operator is less than Rs. 2 crores.
Equalisation levy is leviable under section 165 (online advertisement i.e., under
existing provisions)

 Equalisation levy to be paid by E-commerce operators themselves on quarterly basis:

30th June 7th July

30th September 7th October
31st December 7th January
31st March 31st March

 Other existing provisions of equalisation levy will apply mutatis mutandis to this
equalisation levy on e-commerce operators.

Remarks:

Earlier such levy was only applicable to digital advertising players such as google, facebook, etc.
The ambit of levy has been enhanced to cover supply orders which take place in digital space
owned, maintained by non-residents but having significant transactions in India. This would have
a major impact on e-commerce operators such as Amazon, Netflix. Microsoft, Airbnb, etc.

Besides this, there are certain points which need clarity from government such as whether any
service (e.g. IT Service) received by Indian subsidiary from non-resident parent/ group company
would be liable to equalisation levy.

Note: There can be other implications of above provisions of equalization levy. Readers are
requested to point out other concerns/issues to the author in this regard for discussion and
analysis.

CA. Nitish Pruthi

+91- 9917314110, 6396736915