Finance Bill, 2021 proposed that equalisation levy shall not be levied on consideration received or receivable for specified services or for e-commerce supply which is taxable as royalty or fees for technical services.
Clarification for Equalisation Levy
In order to provide certainty, it is being expressly clarified that transaction taxable under income-tax is not liable for equalisation levy. Further, it is also proposed to clarify regarding the applicability of equalisation levy on physical/offline supply of goods and services.
Rationalisation of the provisions of Equalisation Levy
Under section 165A of Finance Act, 2016, as inserted by section 153 of the Finance Act, 2020, Equalisation Levy is to be levied at the rate of two per cent. of the amount of the consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated, by it-
(i) to a person resident in India; or
(ii) to a non-resident in the specified circumstances as referred to in sub-section (3); or
(iii) to a person who buys such goods or services or both, using internet protocol address located in India.
For this purpose, E-commerce supply or service is defined as to mean:-
(i) online sale of goods owned by the e-commerce operator;
(ii) online provision of services provided by the e-commerce operator;
(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);
Clause (50) of section 10 of the Act provides for the exemption for the 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.
It is seen that there is need for some clarification to correctly reflect the intention of various provisions concerning this levy. Hence, it is proposed to carry out the following amendments in the Finance Act, 2016:-
(i) Insert an Explanation to section 163 of the Finance Act, 2016, clarifying that consideration received or receivable for specified services and consideration received or receivable for e-commerce supply or services shall not include consideration which are taxable as royalty or fees for technical services in India under the Income-tax Act read with the agreement notified by the Central Government under section 90 or section 90A of the Income-tax Act.
(ii) Insert an Explanation to clause (cb) of section 164 of the Finance Act, 2016, providing that for the purposes of defining e-commerce supply or service, ―online sale of goods‖ and ―online provision of services‖ shall include one or more of the following activities taking place online:
(a) Acceptance of offer for sale;
(b) Placing the purchase order;
(c) Acceptance of the Purchase order;
(d) Payment of consideration; or
(e) Supply of goods or provision of services, partly or wholly
(iii) Amend section 165A of the Finance Act, 2016, to provide that consideration received or receivable from e-commerce supply or services shall include:
(i) consideration for the sale of goods irrespective of whether the e-commerce operator owns the goods; and
(ii) consideration for the provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.
These amendments will take effect retrospectively from 1st April, 2020.
It is also proposed to amend section 10(50) of the Act to -
(i) provide that section 10(50) will apply for the e-commerce supply or services made or provided or facilitated on or after 1st April 2020.
(ii) clarify that exemption under section 10(50) will not apply for royalty or fees for technical services which is taxable under the Act read with the agreement notified by the Central Government under section 90 or section 90A of the Act.
(iii) define e-commerce supply or services under section 10(50) as the meaning assigned to it in clause (cb) of section 164 of Chapter VIII of the Finance Act,2016.
This amendment will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.
Amendments in the provisions of section 10(50) and in Finance Act, 2016 related to Equalisation Levy vide Clause 5 and Clause 159 of the Finance Bill, 2021
Amendments to the Finance Act, 2016
PART XIII
AMENDMENT TO THE FINANCE ACT, 2016
159. In the Finance Act, 2016,–
(a) the following amendments shall be made and shall be deemed to have been made with effect from the 1st day of April, 2020, namely:–
(i) in section 163, in sub-section (3), the following proviso shall be inserted, namely:–
“Provided that the consideration received or receivable for specified services and for e-commerce supply or services shall not include the consideration, which are taxable as royalty or fees for technical services in India under the Income-tax Act, read with the agreement notified by the Central Government under section 90 or section 90A of the said Act.”;
(ii) in section 164, in clause (cb), the following Explanation shall be inserted, namely:–
‘Explanation.–For the purposes of this clause, “online sale of goods” and “online provision of services” shall include one or more of the following online activities, namely:–
(a) acceptance of offer for sale; or
(b) placing of purchase order; or
(c) acceptance of the purchase order; or
(d) payment of consideration; or
(e) supply of goods or provision of services, partly or wholly;’;
(iii) in section 165A, in sub-section (3),–
(A) in the opening portion, for the words ‘section, “specified circumstances” mean–’, the following shall be substituted, namely:–
‘section,–
(a) “specified circumstances” mean––’;
(B) after clause (a) as so amended, the following clause shall be inserted, namely:–
“(b) consideration received or receivable from e-commerce supply or services shall include–
(i) consideration for sale of goods irrespective of whether the e-commerce operator owns the goods;
(ii) consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.”.
(b) in section 191, in the proviso, after the word “refundable”, the words “without any interest” shall be inserted and shall be deemed to have been inserted with effect from the 1st day of June, 2016.
Amended Provisions of Finance Act, 2016 related to Equalisation Levy Explained
Clause 159 of the Bill seeks to amend sections 163, 164,165A and 191 of the Finance Act, 2016.
It is proposed to insert a proviso to sub-section (3) of section 163 of the said Act to provide that the consideration received or receivable for specified services and consideration received or receivable for e-commerce supply or services shall not include the consideration, which are taxable as royalty or fees for technical services in India under the Income-tax Act read with the agreement notified by the Central Government under section 90 or section 90A of the said Act.
It is further proposed to insert an Explanation in clause (cb) of section 164 of the said Act to provide that for the purpose of defining e-commerce supply or service, “online sale of goods” and “online provision of services” shall include one or more of the following online activities, namely:–
(a) acceptance of offer for sale;
(b) placing of purchase order;
(c) acceptance of the purchase order;
(d) payment of consideration; or
(e) supply of goods or provision of services, partly or wholly.
It is also proposed to amend sub-section (3) of section 165A of the said Act to provide that consideration received or receivable from e-commerce supply or services shall include–
(i) consideration for sale of goods irrespective of whether the e-commerce operator owns the goods;
(ii) consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.
These amendments will take effect retrospectively from 1st April, 2020.
It is also proposed to amend section 191 of the Finance Act, 2016 relating to exemption from wealth-tax in respect of assets specified in the declaration.
The said section, inter alia, provides that any excess amount of tax, surcharge or penalty paid in pursuance of a declaration made under the Income Declaration Scheme, 2016 shall not be refundable. The proviso to the said section provides that the Central Government may, by notification, specify a class of persons to whom the excess amount so paid shall be refundable.
It is proposed to amend the said proviso to provide that such excess amount of tax, surcharge or penalty paid in pursuance of a declaration made under the aforementioned Scheme shall be refundable to the specified class of persons without payment of any interest.
This amendment will take effect retrospectively from 1st June, 2016.
Further, Clause 5 of the Finance Bill, 2021 amended the provisions of section 10(50) of the Income Tax Act, 1961.
Amendment of section 10.
5. In section 10 of the Income-tax Act,––
(g) in clause (50),––
(I) for the figures “2021”, the figures “2020” shall be substituted;
(II) for the Explanation, the following Explanations shall be substituted, namely:–
‘Explanation 1.––For the removal of doubts it is hereby clarified that the income referred to in this clause shall not include and shall be deemed never to have been included any income which is chargeable to tax as royalty or fees for technical services in India under this Act read with the agreement notified by the Central Government under section 90 or section 90A.
Explanation 2.—For the purposes of this clause,–
(i) “e-commerce supply or services” shall have the meaning assigned to it in clause (cb) of section 164 of the Finance Act, 2016;
(ii) "specified service" shall have the meaning assigned to it in clause (i) of section 164 of the Finance Act, 2016.’
Amended provisions of Section 10(50) explained
Clause 5 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.
Clause (50) of the said section provides for the exemption for the 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 1st April, 2021 and chargeable to equalisation levy under the provisions of that Chapter. It is proposed to change the said year to 2020.
It is proposed to substitute the Explanation to the said clause with Explanations 1 and 2. Explanation 1 proposes to clarify that the income referred to in this clause shall not include and shall never be deemed to have included any income which is chargeable to tax as royalty or fees for technical services in India under the said Act read with the agreement notified by the Central Government under section 90 or section 90A.
Explanation 2 proposes to define the expressions “e-commerce supply or services” and “specified service” for the purposes of the said clause.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.
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