Equalization levy Tax and amendment

What is the Equalisation levy tax?

Sec. 165 of Income-tax Act defines the Equalisation levy tax means the tax leviable on consideration received or receivable for any specified service under the provisions of income tax.

Applicability of Equalisation Levy

On and from the date of commencement of this tax, there shall be charged an equalization levy at the rate of six percent of the amount of consideration for any specified service received or receivable by a person, being a non-resident from—

1. A person resident in India and carrying on business or profession
2. A non-resident having a permanent establishment in India.

After the amendment made through Finance Act 2020, equalisation levy shall be applicable to two types of transactions w.e.f 1st April 2020:

1. Section 165 of Finance Act 2016 introduced Equalisation Levy to be charged at the rate of 6% from the consideration paid or payable to a non-resident person for the online advertisement services and other related services such as provisioning of digital space;
2. The scope of equalisation levy is extended to all sales, gross receipts or turnover of non-resident not having permanent establishment (PE), who is providing the online sale of goods or provision of services or both to a person resident in India or a non-resident in specific circumstances such as the sale of advertisement targeted to Indian market or sale of data collected from India market.

The Equalisation levy shall not Charge where-

1. The Non-resident providing the specified service has a permanent establishment in India and specified service is effectively connected with such permanent establishment
2. The aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident from a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed one lakh rupees
3. Where the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession.

Interest on delayed payment of equalisation levy.

Every person who fails to credit the equalisation levy or any part thereof as required under section 166 to the account of the Central Government within the period specified in that section, shall pay simple interest at the rate of one per cent of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed.

Impact of this Tax

This would affect online operators like Netflix, Amazon prime or any grocery apps who are based in tax Havens and currently exempt from any type of taxes in India or doesn’t have any permanent establishment in India. However, as we have seen earlier in cross border transactions, any tax levy or withholding taxes are borne by Indian service receiver, who in turn increases prices of goods or services. Therefore, our subscription for accessing such online content is going to get expensive.