Introduction

Tech giants and e-commerce companies have managed to grow exponentially by generating revenue from outside the country of residence, while not having to pay tax in the destination countries. The changing dynamics have forced governments across to re-look into their taxation policies. This is because digitization has blurred the link between income-producing activity and location; there is a new tax challenge. Until 2016, such companies managed not to pay their taxes as the performance of services was not executed in India. Meanwhile, foreign entities with permanent establishments are taxed at a rate of 40%. It is to tackle these problems and to tax digitized businesses that the government has introduced an equalization levy.

Contents of this article

  • Introduction
  • History
  • Comparison

History

Introduced in 2016, Equalization Levy 1.0 was applicable at the rate of 6% on gross considerations to be paid to a non-resident service provider in return for certain specified services. Currently, these services include- Online advertising services, any provision for digital advertising space or any other facility or service for online advertisement, any such service that may be notified by the central government Such a service provider should not have a permanent establishment in India and should earn income from- a person resident in India and carrying on business or profession, a non-resident having a permanent establishment in India. The levy is only applicable if the payment made to the non-resident exceeds INR 1 lakh in a financial year and covers only B2B transactions. It is to be noted that the payer is required to withhold the applicable equalization levy from the amount payable to the non-resident service provider.

Comparison

Basis Equalisation Levy 1.0 (Pre) Equalisation Levy 2.0 (Post)
Applicable Rate 6% 2%
Complied by Payer Non-resident e-commerce operator
Coverage

1. Online advertising services

2. Any provision for digital advertising space or any other facility or service for online advertisement

3. Any such service that may be notified by the central government Such a service provider should not have a permanent establishment in India

E-commerce operator from e-commerce supply or services made or provided or facilitated by it:

1. to a person resident in India; or

2. to a non-resident when-

a. sale of advertisement which targets a customer who is residing in India or a customer who accesses the advertisement through internet protocol (IP) address located in India.

b. sale of data collected from a person who is resident in India or from a person who uses an IP address located in India.

3. to a person who buys such goods or services using an IP address located in India.

Payment due date 7th of immediately following month. 7th July , 7th Oct, 7th Jan and 31st March
Required to be paid Monthly Quarterly
Not applicable in following cases

1. The payment for the specified service by the person resident in India or the permanent establishment in India is not for the purpose of carrying out business or profession.

2. The non-resident providing the specified service has a permanent establishment in India, and the specified service is effectively connected with such permanent establishment.

3. The aggregate amount of consideration received or receivable in a previous year by the non-resident from an India resident who is carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed INR 1 lakh.

1. Where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment.

2. Where the equalization levy is leviable under section 165

3. Sales, turnover, or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than 2 crore rupees during the previous year.

Therefore, Equalisation Levy 2.0 has much more wide scope than Equalisation levy 1.0.