While presenting her second Union Budget, the Hon’ble FM Nirmala Sitharaman unveiled a new in...
The concept of equalization levy was introduced in India in the year 2016. It was introduced with a view to tax the digital transactions that means the income accruing to foreign e-commerce companies in India. It aimed at taxing business to business transactions. Let’s understand more about the concept of equalization levy.
EL is a tax that is leviable on consideration received by a non-resident for specified services. Specified service refers to the online advertising or provision of digital space for online advertisement or any other service for online advertising.
EL is imposed under the Finance Act 2016 and not as a part of the Income Tax Act 1961. The government brought in this concept vide Finance Bill 2016 to tax digital transactions.
According to Section 165 of the Finance Act 2016, a person residing in India or a non-resident having permanent establishment in India will deduct EL @ 6% on the consideration paid to the non-resident towards specified services.
The EL should be deducted in case where the aggregate amount of the consideration for such specified services by a non-resident person exceeds 1 lakh rupees, and the payment is to perform business or profession.
In the last decade or so, information technology has expanded in India and globally. This has resulted in increase in the supply and procurement of digital services.
Subsequently, there have been various new business models that come up where there is a massive reliance on the digital and telecommunication network.
These new business models have come up with new tax challenges in terms of nexus, characterization and valuation of data and user contribution. The mixture of inadequacy of physical presence based nexus rules in the present tax treaties and future taxability of such payments as royalty etc. can result in tax disputes. Therefore the government introduced EL vide budget 2016.
The main features of EL are as follows:
The finance act 2020 expanded the scope of the EL to include all non-resident e-commerce operators providing the e-commerce supply or services. According to the provisions, a non-resident e-commerce operator shall be liable to pay EL at the rate of 2% on the consideration received or receivable from the e-commerce supply or services.
The main features of EL 2.0 are as follows:
There are certain issues and challenges in the implementation of the Equalization Levy being debated at domestic and international level. The taxpayers are anticipating appropriate clarification from the government with regards to the same.
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