Equalisation Levy Applicability and Consequences in India

Equalisation Levy Applicability and Consequences in India

Equalisation Levy Applicability in India

Applicability of Equalisation Levy

Currently, the following services are covered under the Equalisation Levy in India:

  • Online advertising services
  • Provision for digital advertising space
  • Any other service as may be notified by the government

The Government of India has the power to notify additional services that would be subject to the Equalisation Levy in the future. The definition of the services covered by the Equalisation Levy is broad and aims to cover all forms of digital services that are provided to Indian residents or businesses by non-resident companies. However, it is important to note that not all digital services are subject to the Equalisation Levy, only the specified ones as notified by the government.

The Equalisation Levy is a tax imposed by the Indian government on specified digital services, it is tax withheld at the time of payment by the service recipient. If below two conditions are met then it becomes mandatory for the service recipient in India to withhold the tax prescribed under equalisation levy. 

  • The payment made to a non-resident service provider.
  • The annual payment made to one service provider is more than Rs. 1,00,000 in one financial year.

Rate of Tax under Equalisation levy

Under this rule, the rate of tax is 6% of the gross consideration to be paid.

Example: ABC an Indian entity has availed digital advertisement services on a platform which is located in Singapore to promote his business. It has to pay Rs. 5,00,000 in FY 2023-24 to the Singapore entity for the advertising services availed.

ABC will have to now deduct tax under Equalisation Levy at the rate of 6% of Rs. 5,00,000 = Rs.30,000 and pay the balance of Rs. 4,70,000 to the Singapore entity.

When is it Not applicable, The 6% EV?

If that non-resident service provider has a permanent establishment in India. or if, the requested service is related to that permanent establishment.

The total amount of the consideration to be paid for the specific service received or payable is less than Rs. 1,00,000.

The service described is not intended to be used for the business purpose.

Equalisation Levy Expansion

In 2020 Government of India expanded the scope of this levy by covering other digital and e-commerce space, the objective was to cover a larger number of transactions. It brought a rule to cover all non-residents whose owners operate or manage an e-commerce platform for online sale of goods or services or both or facilitation of such sale. This new levy system is not applicable for the already existing levy system of 6% that is applicable to online advertising or the provision of digital space.

Under this new levy, tax rate will be 2% on consideration receivable by a non-resident “e-commerce operator” for “e-commerce supply or services” provided or facilitated by it on or after 1st of April 2020.

What does e-commerce operator mean?

Anyone who owns, operates, or manages a digital facility for the online sale of goods or services or both.

What does E-commerce supply or services mean?

It means online sale of goods or services (including facilitation of the sale of such goods or services) by an e-commerce operator.

The equalisation levy is applicable when a sale is made, or service is provided to either an Indian resident, or to any person who buys goods or services using an internet protocol (IP) address located in India, or to a non-resident in ‘specified circumstances.’

These ‘specified circumstances’ include firstly, the sale of advertisement targeting an Indian resident customer or a customer accessing the advertisement through an Indian IP address, and secondly, the sale of data collected from Indian residents or from persons who use an Indian IP address.

When is it Not applicable, The 2% EV?

An “e-commerce operator” will be excluded from the 2% tax if that operator has permanent establishment in India and the e-commerce supply or service is effectively connected with this permanent establishment; or if the turnover of the e-commerce operator (on which the 2% equalisation levy is otherwise leviable) is less than Rs. 2 Crores during the financial year.

Due Dates for Compliance 

The responsibility to comply with the law of 2% levy is that of non-resident e-commerce operators. and for 6%, it is the responsibility of the resident service recipient to deduct tax and to file the tax forms of EV.

The tax deducted under 6% EV has to be deposited by 7th of the following month by recipient of services

The tax deducted under 2% EV has to be deposited quarterly, 7th of month following the end of quarter by non-resident e-commerce operator.

Along with the payment of tax or say deposit of tax with the government, a form has to be filed with the Government. Equalisation levy statement has to be filed by 30th June after the financial year ends.

Consequences of Delayed Payments of EV

  • Failure to deduct the equalisation levy: The penalty amount will be equivalent to the Equalisation Levy that the assessor failed to deduct.
  • The levy has been deducted from the payment being made but has not been deposited. The fine amount in this case will be Rs. 1,000 per day till the default continues, but the amount of a penalty must be less than the sum of the Equalisation Levy.
  • On failing to file the Equalisation Levy statement within the prescribed due date, there is a penalty of Rs.100 per day if the default persists.
  • There is imprisonment of a term of up to 3 years and a fine on submission of false statements.

For more information, please contact us: info@taxvic.com