Equalisation Levy-Taxing the Digital Ecommerce Transactions

The digital space has grown rapidly in the past few years. We are surrounded by umpteen digital advertisements popping up every single minute on our mobile phones. Online Service Providers are generating huge revenues from online advertising. The biggest beneficiaries of this rapid growth in the Digital Space are companies earning through Digital Ads like Google, Facebook, Twitter, Linkedin, Yahoo and other advertising majors. However, they do not have permanent establishment in the country in which they are providing services and generating revenues.

Moreover, companies providing such services have permanent establishment in countries which are subject to lower rate of tax and hence, have created a new challenge for the revenue departments of the countries where they do not have any permanent establishment.

What is Equalisation Levy?

Its defined as “Tax leviable on consideration received or receivable for any specified service under the provisions of this chapter”. The levy would be under a separate self-contained code and is not part of the income-tax law.

Services Covered:

The Equalisation Levy would be applicable at 6% on gross consideration payable for a ‘Specified Service’.

‘Specified Service’ is defined as follows:

(1) Online advertisement;

(2) Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;

(3) Any other service which may be notified later.

Applicability:

The levy will be applicable on the payments received by a non-resident service provider from an Indian resident or an Indian Permanent Establishment (‘PE’) of a non-resident, in respect of the specified service. The levy would not be applicable to non-resident service providers having a PE in India, as they will be subjected to a regular PE basis taxation. The levy is currently applicable only on B2B transactions, if the aggregate value of consideration in a year exceeds approx USD 1500.

Who needs to comply:
Every resident person and foreign company (having a PE in India) is required to withhold Equalisation Levy while making payment to a non-resident service provider. The compliance procedure is similar to withholding tax compliances already prevalent in India.

Contributed by:

Hemanth C

Articled Assistant, CA Finalist

Preetham Shetty & Co.