Equalisation Levy 2020 on Non Resident e-Commerce Operator

equalisation-levy-2020-on-non-resident-e-commerce-operators

Finance Act, 2020 has amended the provisions of Chapter VIII of Finance Act, 2016 to provide for equalisation levy 2020 on non-resident e-commerce operators on various e-commerce supply of goods and services.

    Equalisation levy was first introduced in India by Finance Act, 2016. Chapter VIII of the Finance Act, 2016 provided for levy of equalisation levy on certain specified services related to digital domain wherein the amount of consideration exceeds a specified value. The Finance Act, 2016 states that with effect from July 1, 2016, equalization levy @ 6% should be deducted by a resident or non-resident (having a permanent establishment in India) on the amount of consideration paid or payable to the non-resident not having a permanent establishment in India.

    Equalisation levy is also called as 'Google tax' since online advertisement through google has the largest share and this levy impacts google most. 


    Background of Equalisation Levy


    Taxation of online advertisement was a litigious matter. It was held in various judicial precedents that if the web servers are not situated in India then such servers do not constitute a permanent establishment in India and hence any income from online advertisement does not accrue or arise in India in the hands of the non-residents.

    In the case of Income Tax Officer Vs. Right Florists Pvt Ltd (ITA No. 1336/Kol/2011), ITAT Kolkata held that "The interpretation of the expression ‘permanent establishment’, even in the context of tax treaties, does not, therefore, normally extend to websites unless the servers on which websites are hosted are also located in the same jurisdiction. The underlying principle is this. While website per se, which is a combination of software and electronic data, does not constitute a tangible property as it cannot have a location which constitutes place of business, a web server, on which the web site is stored and through which it is accessible, is a piece of equipment having a physical location and such location may thus constitute a “fixed place of business” of the enterprise that operates that server. A search engine, which has only its presence through its website, cannot therefore be a permanent establishment unless its web servers are also located in the same jurisdiction. That’s not the situation here and it is not the case of the revenue that servers are located in India."


    In the case of the digital economy, there is no requirement of physical presence and hence the services can be rendered without being present physically in another state. Since the income from the online advertisement is held to be not a royalty or fees for technical services, the same is held to be 'business income' of the non-resident recipient. In case of business income, the same will be liable to tax in India if such non-resident has a permanent establishment in India. The tax department's stand was that payment for online advertisement falls under “royalty” or “fees for technical services” (“FTS”) and is hence taxable in India on the source basis.  However, in various judicial cases or precedents, it was held that income from the online advertisement for a non-resident is not in nature of royalty or FTS but is in the nature of “business income or business profit” and in absence of a permanent establishment (“PE”) of the non-resident service provider in India, such advertising revenue is not subject to income-tax in India.



    Refer cases:
    Pinstorm Technologies (P.) Ltd. vs. ITO [2012] 24 taxmann.com 345 (Mumbai-Trib)
    Yahoo India (P.) Ltd. vs. DCIT [2011] 11 taxmann.com 431 (Mumbai-Trib)
    ITO vs. Right Florists (P.) Ltd. [2013] 32 taxmann.com 99 (Kolkata-Trib.)

    In the digital era, the business has been transformed from a room of bricks and mortars to a digital shop where physical presence is not warranted. These are borderless transactions without any requirement of physical presence. The biggest beneficiaries of these new cultures of the online business model are Google, Facebook, Linkedin, Yahoo, Twitter. Payments made to these organizations engaged in digital business for online advertisement are not liable to tax in India as they do not have a PE in India. Therefore the provisions of withholding taxes do not apply in these cases.


    Under the circumstances, it was not possible for the government to tax the income from online advertising in India. To overcome this situation, the government has levied 'equalisation levy' on such online advertisement income which is otherwise not chargeable to tax in India under the Income Tax Act, 1961. The levy of equalisation levy is in line with the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS)  Action Plan-1. The action plan considers equalization levy as an option to tax digital transactions.


    The term 'equalisation' implies tax neutrality. In other words, it means a level playing field between service providers having and not having a permanent establishment in India including a resident or domestic service providers.

    Meaning - Equalisation Levy


    Equalisation Levy is a levy on specified services being levied on non-residents who do not otherwise pay income tax in the State in which services are being provided by virtue of digitalisation of rendering services.

    With the implementation of Equalisation Levy, a “level playing field” between service providers with and without a permanent establishment in India has been created. The “equalisation levy” implemented by India from June 1, 2016 on some specified digital advertisement services provided by non-residents.

    Equalisation Levy is governed by a separate law which is enshrined in the Finance Act, 2016 and amended by Finance Act, 2020. Hence, equalisation levy is not income-tax and this levy does not come under income tax. Although, equalisation levy is administered by the income-tax authority.

    Since equalisation levy is not income-tax, there may be a possibility of double taxation in the hands of non-resident service providers. Equalisation levy will not qualify as income-tax and hence tax credit under the Double Taxation Avoidance Treaty will not be available to the non-resident service provider.

    Before Equalisation Levy 2020 on Non-resident e-Commerce Operator is discussed, it is important to discuss the flashback of the equalisation levy that was introduced in 2016 to understand the levy of 2020 more aptly.

    Equalisation Levy as introduced by Finance Act, 2016


    As stated above, Chapter VIII of the Finance Act, 2016 contains the provisions of equalisation levy. Sections 163 to 180 of the Finance Act, 2016 prescribes different provisions of the equalisation levy law in India. The Act of 2016 itself did not provide the applicability date of the equalisation levy i.e. the date on which the provisions of Chapter VIII of the Finance Act, 2016 will come into force but was notified to be applicable from 1st June 2016 by a Notification No. 37 of 2016 dated 27.05.2016 issued by the CBDT in this behalf. Hence, from June 1, 2016 provisions of Chapter VII of the Fiance Act, 2016 related to equalisation levy law has come into force.

    Equalisation Levy Rules, 2016 Notified

    CBDT had notified the Equalisation Levy Rules, 2016 by a Notification No. 38/2016 dated 27.05.2016 for carrying out the provisions of Chapter VIII of the Finance Act, 2016 relating to Equalisation Levy.

    Applicability of Equalisation Levy 2016

    The 2016 provisions are summarised below-



    1. Rate of equalisation levy: The rate of equalisation levy is 6% on the amount of consideration received or receivable by a non-resident having no permanent establishment in India.

    2. Charge of equalisation levy: Equalisation levy is charged on the amount of consideration for any specified service received or receivable by a person, being a non-resident from– 
    (i) a person resident in India and carrying on business or profession; or
    (ii) a non-resident having a permanent establishment in India.
    [Section 165(1)]

    3. Exclusion from equalisation levy: The equalisation levy shall not be charged, where–

    (a) the non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment;

    (b) the aggregate amount of consideration for specified service received or receivable by the non-resident from the above-mentioned persons does not exceed Rs. 1 Lakh in a financial year; or

    (c) where the payment so made is not for the purposes of carrying out business or profession.

    [Section 165(2)]

    4. Deduction of equalisation levy: Persons making payments for specified services shall deduct equalisation levy @ 6 per cent in excess of Rs. 1 Lakh. Thus, there will be no equalisation levy up to Rs. 1 Lakh and if the payment exceeds Rs. 1 Lakh in a financial year then equalisation levy shall be deducted from the whole amount of payment and not on the amount in excess of Rs. 1 Lakh. [Section 166(1)]

    It should be borne in mind that - 

    (i) If a non-resident service provider receives less than Rs. 1 lakh in a financial year from one resident or non-resident having a PE in India payer, the same shall not be liable to equalisation levy.[Section 165(2)(b)]

    Example- During the FY 2019-20 Google Ireland has earned Rs. 95,000 from X Ltd., an Indian Company and Rs. 85,000  from  Y Ltd., an Indian company towards online advertisement charges. Since each amount is less than Rs. 1,00,000, equalisation levy shall not be leviable.

    (ii) If a resident or non-resident having a PE in India payer is paying less than Rs. 1 lakh to each foreign service provider in a financial year for the specified services, there is no need to deduct equalisation levy. [Section 166(1)]

    Example- X Ltd, an Indian Company, has paid Rs. 90,000 to Google Ireland and Rs. 85,000 to Facebook Ireland towards online advertisement during FY 2019-20. Since each payment is less than Rs. 1,00,000, X Ltd. is not required to deduct any equalisation levy.

    5. Due Date for Depositing the equalisation levy: The equalisation levy so deducted shall be required to be deposited by 7th of the next month of the deduction. [Section 166(2)]. If the person making the payments fails to deduct the equalisation levy then the person shall be liable to deposit the equalisation levy to the credit of the central government within the prescribed due date of 7th day of the next month in which the deduction is ought to have been made. [Section 166(2) and Section 166(3)]

    6. Furnishing of statements or filing of returns: Every assessee shall furnish an annual statement of collection and deposit of equalisation levy in Form No. 1 within June 30 of the next financial year following the end of the previous year in which equalisation levy was deducted. [Section 167(1) read with Rule 5]. Any revised statement can be filed within 2 years from the end of the financial year in which the specified service was provided. [Section 167(2)]

    7. Processing of statements: Any statement filed in Form No. 1 shall be required to be processed within 1 year from the end of the financial year in which the statement is furnished and an intimation will be sent to the assessee. The statement so processed shall determine the amount of any sum payable or refundable to the assessee. [Section 168]

    8. Rectification of mistake in the intimation: Any intimation issued under section 168 may be amended by the Assessing Officer suo motu or on an application made by the assessee in this behalf for rectifying any mistake apparent from records. [Section 169]

    9. Interest on delayed payment of equalisation levy: In case of delay in deposit of equalisation levy to the credit of the central government, interest @ 1% for every month or part thereof shall be required to be paid for every month of delay. [Section 170]

    10. Penalty: Any person who-

    (a) fails to deduct equalisation levy then he shall be required to pay the equalisation levy and interest thereon and a penalty equal to the amount of the equalisation levy which he failed to deduct.

    (b) fails to pay the equalisation levy after the deduction to the government with the due date, then he shall be liable to pay-
    (i) the amount of equalisation levy which he had failed to deposit,
    (ii) amount of interest thereon,
    (iii) a penalty of Rs. 1,000 per day for each day of default subject to the maximum amount of equalisation levy which he had failed to deposit. [Section 171]

    (c) Penalty for failure to furnish statement: Where an assessee fails to furnish the statement within the time prescribed under section 167(1) or section 167(3), he shall be liable to pay a penalty of Rs. 100 per day for each day of default. [Section 172]


    The is no limit on the maximum amount of penalty is prescribed under section 172.


    No penalty shall be imposed under section 171 or section 172 if there exists reasonable cause for failure. Further, before imposing any penalty under these provisions, the assessee must be given a reasonable opportunity of being heard.


    11. Appeal to CIT(A): An assessee has the right to file an appeal against any penalty order to the CIT(A) in Form No. 3 electronically with 30 days from the date of receipt of the order.[Section 174 and Rule 8]


    The right to appeal is prescribed for penalty order only. No right to appeal is given for the Intimation so issued under section 168.


    The appeal form must be accompanied by appeal fees of Rs. 1,000.


    12. Appeal to ITAT: Against the order of the CIT(A), an appeal may be filed before the ITAT within 60 days of the date of receipt of the CIT(A) order. An appeal before ITAT shall be filed in Form No. 4 and shall be accompanied by a fee of Rs. 1,000. [Section 175 and Rule 9]


    13. Prosecution for false statement: If any person makes any false statement in any verification or furnishes any false statements deliberately, he shall be punishable with imprisonment.


    14. Rounding Off: The amount of consideration for specified services, amount of equalisation levy, interest and penalty, and the amount of refund due has to be rounded off to the nearest multiple of Rs. 10 [Rule 3 of the Equalisation Levy Rules, 2016]



    Equalisation Levy 2016 applies on Online Advertisement


    As per section 165, equalisation levy shall be charged on any specified service. According to Section 164(i) “specified service” means -
    (a) online advertisement,
    (b) any provision for digital advertising space or 
    (c) any other facility or service for the purpose of online advertisement and 
    (d) includes any other service as may be notified by the Central Government in this behalf.

    Section 164(f) further define (f) “online” which means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network.



    Consequential amendments in other provisions for Equalisation Levy


    Section 10(50): Exemption from income tax: Finance Act, 2016 has amended section 10 of the Income Tax Act, 1961 by inserting a clause (50) to section 10 to provide for exemption on any income arising from any specified service provided which chargeable to equalisation levy under Chapter VIII of the Finance Act, 2016.

    Thus the income from online advertisement to a non-resident service provider on which is chargeable to equalisation levy is exempt under section 10(50) of the Income Tax Act, 1961.

    Section 40(a)(ib): Disallowance of expenses: Finance Act, 2016 has amended section 40(a) by inserting a new clause (ib) to provide for disallowance of any consideration paid or payable to a non-resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of the Finance Act, 2016, and such levy has not been deducted or after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139.

    It is further provided that where in respect of any such consideration, the equalisation levy has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid.


    Therefore, as per section 40(a)(ib), if the equalisation levy is deducted or not deposited on or before the due date specified in section 139(1) of the Income Tax Act then the expenditure incurred on the online advertisement would be disallowed from the computation of business income of the assessee. The same will, however, be allowed in the year of payment.



    Facts of Equalisation Levy 2016 beyond the law


    The levy is simple to understand and apply. There is no need to determine whether the income is a business income or royalty or FTS income. There is no need to determine the Permanent Establishment of the non-resident either. For the deduction of equalisation levy, there is no need to issue any certificate to the non-resident service providers like TDS certificate. Further, there is no need to obtain any TRC. 

    The entire compliance burden for the levy is on the resident payers. The non-resident service provider has no responsibility under the law. Even if the resident assessee fails to deposit the levy with the exchequer, the non-resident will not be called to deposit the tax.


    Even though the law requires deduction of equalisation levy from the payments made to non-resident service providers, but many service providers require the payers to bear the levy and make the payment net of taxes to them. For example, in the case of Google, it requires the customers to pay all the taxes and other government charges. Hence, the 6 per cent of equalisation levy is an additional cost for the resident payers. Even if the non-resident agrees for the equalisation levy, then the non-resident will increase the price of the services accordingly to compensate it for the loss of revenue attributable to the levy.

    Grossing Up of expenditure: 
    In cases where the terms of payment, like that of Google, requires to pay the non-resident net of taxes and the player has to bear the burden of local taxes, etc then is it permissible to gross up the expenditure for the equalisation levy.

    For example, if the charges for online advertisement is Rs. 100. Then as per law, the resident payer will deduct Rs. 6 and pay Rs. 94 to the non-resident. Suppose, the resident has to pay the applicable taxes or levies and the non-resident wants net payment of Rs. 100. In this case, whether the resident has to pay Rs. 4 to the government and Rs. 100 to the non-resident or the Rs. 100 will be grossed up to Rs 106.38.


    There are divergent views on the issue. One contention is that the net payment needs to be grossed up in line with the requirement of section 195A of the Income Tax Act, 1961. Another view is that there is no requirement of grossing up since section 171 of Finance Act, 2016 requires that in case resident payer did not deduct equalisation levy then he is required to deposit the amount of levy on the consideration amount paid to the non-resident. This section does not talk about or indicates any grossing up of the amount so paid to the non-resident. It must be remembered that 
    Chapter VIII of Finance Act, 2016 does not prescribe any requirement of grossing up of equalisation levy similar to the requirement for grossing up of tax provided in section 195A of the Income Tax Act, 1961.

    Nevertheless, whatever grossing up method is used, the resident payer can claim a deduction as a business expenditure while computing his business income.

    In the equalisation levy of 2016 only advertising services, not any supply of goods or other services, are taxable.

    Equalisation Levy of 2016 applies only when the advertising services are used or availed by a resident person carrying on business activities. It is immaterial whether the business activities are undertaken for profit-motive or not. Hence, even a charitable trust (for example a hospital or an educational institution) carrying on business activities is liable to deduct and deposit equalisation levy for making payments to non-resident online advertisers.

    Hence, it applies only to B2B - Business to Business transactions. The charge of equalisation levy is restricted to business-to-business (B2B) transactions and does not apply to the business-to-consumer (B2C) transactions. Therefore, any resident making payments for personal purpose is outside the scope of equalisation levy.


    No need to deduct both equalisation levy and tax under section 195 since income which is charged to equalisation levy is exempt from income under section 10(50).


    The income may be subject to tax in the country of residence of the service providers. In that case, the income which suffered equalisation levy in India will not get credit in their country which will result in double taxation of the same income. On the contrary, if the non-resident is a tax resident of a jurisdiction which has low or nil tax, known as tax havens, then non-levy of equalisation levy will amount to non-double taxation.


    Equalisation levy is only levied on online advertising services. It is not levied on other nature of online services viz payment made to a non-resident for use of their online content, online data, uploading, storing or distribution of digital content, downloading of songs, movies, e-books, software, online consumption of news and e-commerce transactions, etc.


    Equalisation levy is not subject to Surcharge or Health and Education Cess of 4% as specified for income-tax. Equalisation Levy is not under the Income Tax Act, 1961 but comes as a separate Chapter of Finance Act, 2016.



    Equalisation Levy, 2020 enacted by Finance Act, 2020


    The digital economy or online business is constantly developing and evolving very rapidly. This economy is very dynamic and changing and surpasses the existing taxation laws and hence escapes taxes easily which are primarily designed for the traditional economy.

    In a digital economy, the physical presence or offices is not necessary and a transaction is effected beyond the territorial jurisdiction without having any physical office which is also known as a permanent establishment in taxation. It is a borderless transaction which can be affected without being physically present.


    In order to tax a wide range of digital economy transactions under the equalization levy, the scope of equalisation levy is extended from online advertising services to e-commerce transactions by the Finance Act, 2020.


    The Finance Act 2020 has extended and enlarged the scope of equalisation levy to almost all digital e-commerce transactions in India which will come into effect from April 1, 2020.


    For this purpose, Chapter VIII of the Finance Act, 2016 has been amended to include non-resident e-commerce operators within the ambit of equalisation levy which will be discussed in length which hitherto was applicable to digital advertisements only.


    The amendments so introduced by the Finance Act, 2020 was not present in the Finance Bill, 2020 that was presented on February 1, 2020. It further appears that the amendments were inserted at the last moment in the Act. Further, the Finance Bill, 2020 after incorporating the amendments was passed by the Lok Sabha without any discussion since Lok Sabha was adjourned sine die on March 23, 2020 due to outbreak of COVID-19.


    Since these amendments were not in the Finance Bill, 2020 the explanatory notes are not available to find out the intention behind the introduction of the new provisions. As a result, various interpretation related issues are coming up from the enacted provisions.


    The Finance Act, 2020 has not rescinded or withdrawn the earlier equalisation levy provisions on the online advertisement. Those provisions are still in the statute. The equalisation levy on e-commerce operators is in addition to the existing provisions. However, remember there are fundamental differences in the operative provisions of the equalisation levy on e-commerce operators compared to the online advertisement which is discussed at length here.


    There are nows two sets of equalisation levy on online advertisements and on e-commerce operators. The provisions related to the online advertisement is discussed above, the amendments in Finance Act, 2020 is all about the equalisation levy on e-commerce operators only. There is no change in the provisions related to equalisation levy on online advertisements as is continued since 2016.


    For this purpose, a new section 165A is inserted after section 165 in Chapter VIII of the Finance Act, 2016. This is inserted as Part VI of the Finance Act, 2020.


    Section 165A of Finance Act, 2020 provides for the followings-


    1. Applicability date: The provisions of section 165A has come into effect from April 1, 2020.


    2. Rate of tax: Section 165A provides for levy of equalisation levy of 2 per cent on the amount of consideration received or receivable by an e-commerce operator from ‘e-commerce supply of goods and services.


    "e-commerce operator" is defined to mean a non-resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services or both. [Section 164(ca)]


    "e-commerce supply or services" means—

    (i) online sale of goods owned by the e-commerce operator; or
    (ii) online provision of services provided by the e-commerce operator; or
    (iii) online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
    (iv) any combination of activities listed in clause (i), (ii) or clause (iii).
    [Section 164(cb)]

    3. Coverage of transactions: To attract the levy, the e-com supply or services must be:

    (a) made
    (b) provided or,
    (c) facilitated 
    by the e-com operator to the following buyers or customers-
    (i) to a person resident in India
    (ii) to a non-resident in the case where 
    (a) the consideration is received by the e-com operator from the non-resident for the sale of advertisement which targets a customer who is a resident in India or  a customer who uses the advertisement through internet protocol (IP) address located in India,
    (b)  the consideration is received by the e-com operator from the non-resident from the sale of data which is collected from a person who is a resident in India or  a from a person who uses internet protocol (IP) address located in India,
    (iii) to a person who buys such goods or services or both using internet protocol (IP) address located in India. [Section 165A(1) and (3)]

    4. Exclusion of e-com transactions from levy: Section 165A(2) provides that the Equalisation Levy shall not be charged in the following cases:
    (i) Where the non-resident e-commerce operator has a permanent establishment (PE) in India,
    (ii) Where the equalisation levy is leviable @ 6 per cent i.e. digital advertising services,
    (iii) Where the sales, turnover or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated to the buyers or customers as referred above is less than Rs. 2 crore during the previous year. [Section 165A(2)]

    Section 165A is the crux of the new digital transactions which has come within the purview of equalisation levy.



    Section 165A - Equalisation Levy 2020 on e-commerce transactions


    Following are the key points to elaborate on the provisions contained in section 165A-


    (1) The amended provisions almost cover all digital transactions.

    (2) It not only covers the e-com aggregators like Amazon.com, Alibaba.com, etc. but also covers the standalone websites of any hotel or other companies who do not have a business presence in India. Service providers like Netflix, foreign online gaming portals are also covered. Any subscription amount paid to Netflix or to any foreign magazine etc falls under the new equalisation levy. Even any business transacted through e-mail communication is covered by the levy.

    (3) If a non-resident e-commerce operator has a permanent establishment in India, it gets covered under the normal provision of Income Tax Act and the same will apply to it and not the provisions of Chapter VIII of the Finance Act, 2016 as amended by Finance Act, 2020. The crux point is the 'PE' and not the business connection or Significant Economic Presence (SEP) for the purpose of applicability of the levy.

    (4) Once the threshold limit of Rs 2 crore exceeded then equalisation levy will be applicable on the whole of the sales, turnover or gross receipts of the non-resident e-commerce operator.

    (5) While computing the threshold limit, the turnover or sales or gross receipt of the non-redient e-commerce operator shall be counted only from the transactions or business with Indian residents or sale of advertisement which targets Indian customers etc. and not the global turnover of the e-commerce operator.

    Consider an example. A foreign e-commerce giant is headquartered outside India and operating e-commerce websites across various countries, including India. In India, the e-commerce company interacts with sellers and consumers over e-mails, website etc., without any physical presence in India. For example. www.alibaba.com which is an online e-commerce facilitator situated outside India. 

    In this case, the turnover limit of alibaba.com is to be computed from Indian operations and not from the global operation. The revenue that is attributable from the Indian operations is counted in the limit of Rs. 2 crore.

    (6) Both B2B and B2C transactions covered: Unlike equalisation levy on advertising which applies only when the resident person carries on business activity (b2b),  the equalisation levy on e-commerce operator shall apply even in case of personal consumption without any business activity (b2C). The non-resident e-commerce operator shall pay the levy irrespective of the purpose for which the resident customer has purchased or availed goods or services. 

    (7) The language and expression of the legislation suggest that it covers a transaction between non-resident persons. Consider a case. A reputed hotel chain of USA pays consideration to Facebook Ireland to provide them with the data of Indians who are interested in US tourism. The payment of consideration is between two non-residents but the transaction gets covered in one of the 'specified circumstances'. 

    (8) It is not necessary that a person who is using an Indian IP address should be a resident in India. He may be a non-resident too. Consider a case. A UK national has come to India on a tourist visit and staying in a hotel. From India, he has the plan to go to Singapore. He opens the website of a reputed hotel in Singapore from the computer of the hotel and books a hotel there. This transaction is covered in the new equalisation levy since the hotel is booked from an Indian IP. Singapore's Hotel company has to pay the equalisation levy in India.

    (9) A transaction between a foreign parent company and its Indian subsidiary or associate company also gets covered. For instance, if Google Ireland provides any technical assistance or service to Google India this would trigger the levy as the latter is a resident.

    5. Collection and recovery of equalisation levy on e-commerce supply or services: The equalisation levy on the amount of consideration received or receivable from e-commerce supply of goods and services shall be paid by every e-commerce operator to the credit of the Central Government. [Section 166A]


    This is a paradigm change in the present system of equalisation levy compared to the earlier services. In the case of advertising, the collection and other compliances are burdened on the resident persons whereas, in the case of e-commerce operators, the obligation to collect and deposit the equalisation levy is burdened on the non-resident e-commerce operators. In the case of advertising, the buyer or service recipient is an assessee whereas the buyer or recipient is not under any obligation to collect or deposit the equalisation levy. 


    However, to pay the equalisation levy one needs to use Challan No./ITNS 285. One of the mandatory fields of the challan is the Permanent Account Number (PAN) of the assessee. Hence, a non-resident e-commerce operator having no PE in India is mandatorily required to apply for PAN in India.



    equalisation-levy-2020-on-non-resident-e-commerce-operator

    6. Due date of payment of equalisation levy: Unlike equalisation levy on digital or online advertising, the equalisation levy on 'e-commerce supply or services' is required to be deposited quarterly as specified in section 166A. The prescribed due date is 7th day of the next month ended after a quarter except for the quarter ending on 31st March when the equalisation levy is required to be paid by 31st March itself.



    Due Date for Payment of equalisation levy on e-commerce transactions by a non-resident e-commerce operator

    Serial Number
    Date of ending of the quarter of financial year
    Due date of the financial year
    (1)
    (2)
    (3)
    1.
    30th June
    7th July
    2.
    30th September
    7th October
    3.
    31st December
    7th January
    4.
    31st March
    31st March

    7. Furnishing annual equalisation levy statement: There is no change in the requirement and the due date by which the non-resident e-commerce operator has to furnish a statement of equalisation levy in Form 1 by June 30 of the next financial year. 


    8. Corresponding amendments to other provisions: Other provisions related to interest, penalty, etc. is suitably amended to cover equalisation levy on e-commerce transactions in the same manner as it applies in the case of online advertising.


    9. Determining the value of consideration: There are many e-commerce operators like amazon, banggood, Alibaba, etc which provide the platform to facilitate the buyers and sellers and receives a fee or commission for a transaction. In this case, whether the equalisation levy would be paid on the value of the fee or on the value of goods or services is not made clear.

    Consequential amendments to Income Tax Act, 1961

    A consequential amendment is effected in clause 50 of section 10 to exempt the income of the non-resident e-commerce operator which suffers equalisation levy under Chapter-VIII of the Finance Act, 2016 under the Income Tax Act, 1961.


    This is in line with the exemption being provided for the online advertising revenue of the non-resident service provider which suffers equalisation levy.


    The new section 10(50) reads as follows-


    "(50) any income arising from any specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 comes into force or arising from any e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2021 and chargeable to equalisation levy under that Chapter."


    Unlike the equalisation levy on online advertising where the resident payer has to collect and make other compliances in India, here, in case of e-commerce business, the non-resident e-commerce operator will be required to make compliances in India which includes the deposit of equalisation levy so collected on a quarterly basis and also to file an annual return. The provisions seek to cover non-resident to non-resident e-commerce transactions.


    Similar to present levy on online advertising, the income on which equalisation levy has been paid on e-commerce transactions have been exempt from income tax, unless the non-resident e-commerce operator has a PE in India and goods and services so supplied are effectively connected to such PE in India.



    Conclusion

    As stated earlier, the provision of the equalisation levy was not in the Finance Bill, 2020 when the same was introduced in the Parliament on February 1, 2020. The same is introduced in the Finance Bill, 2020 at the time of passing by the Lok Sabha on 23.03.2020. The Bill was notified as Finance Act, 2020 on 27.04.2020 and the provisions came into force from April 1, 2020. This is the period when the entire nation, as well as most of the countries of the world, are under lockdown due to COVID-19 pandemic.

    It has given little or no time to understand by most non-residents. Further, the amendment escaped the discussion and consultation since it was not introduced in the original Finance Bill, 2020 and appears that the same is introduced in haste in the law. In contrast, the similar nature of UK’s Digital Services Tax was announced in Budget 2018 but introduced as law in 2020 after due consultation and discussions.


    Under the given circumstances, it would be better if the government postpones its operation.


    Further, it is seen as an attempt on the part of the Government to override international tax treaties through a unilateral act and may face legal challenges on the extra-territorial jurisdiction issue.

    One more related issue on the taxation of e-commerce transactions is introduced by Finance Act, 2020 and that is TDS on e-Commerce transactions (Section 194-O of Income Tax Act, 1961) from October 1, 2020. In this case, e-commerce operator shall deduct TDS on all payments or credits to e-commerce participants at the rate of 1% in PAN/Aadhaar cases and 5% in non-PAN/Aadhaar cases. In order to provide relief to the small businessman, it is proposed to provide an exemption to an individual and HUF who receives less than Rs. 5 lakh and furnishes PAN/Aadhaar.

    It must be remembered that section 194-O shall apply only where the e-commerce participants are residents but the e-commerce operator may be a resident or non-resident in India.


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