Equalisation Levy : Explained

by Tanu Garg



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Introduction

EQL was introduced in the Union Budget 2016 and is included in the Chapter VIII of the Finance Act 2016. The Govt. had set up a committee on taxation of E-commerce which gave its report in February, 2016. On 27 May 2016, Equalisation Levy Rules, 2016 were notified. It was made applicable w.e.f. 1st June 2016.

EQL is popularly called ‘Google Tax’.

Why EQL Required?

Some judicial precedents that illustrates the need of EQL:

1. In the year 2011, the Mumbai Bench of the Tribunal in the case of Yahoo India (P) Ltd vs DCIT: 140 TTJ 195held the payment made by assessee to Yahoo Holdings Hong Kong Ltd ('YHHL'), for the services rendered for uploading and display of banner advertisement of the Department of Tourism of India, on its portal, was not in the nature of royalty as defined in the Indian Income tax Act. The Tribunal held the consideration received by YHHL to be in the nature of business profit and in the absence of any PE of YHHL in India, it was held to be not chargeable to tax in India.

2.Likewise, in ITO vs Pubmatic India (P) Ltd: 60 SOT 54, the Mumbai Bench of the Tribunal held remittance made to a US company towards purchase of advertisement space fell under Article 7 of India-USA DTAA and in absence of a PE of such company in India, income was not taxable in India.

As would be observed, the attempts of the Indian Revenue to bring to tax payments for online advertisers within the ambit of tax by applying the existing provisions of the Indian Income tax Act and the Double Tax Treaty, were not successful before the Tax Tribunals. A new law or levy approach was thus required to bring such payment to tax.

Objective Of  EQL:

To tax the income of digital economy engaged in providing specified services which remain untaxed by applying the existing provisions of the Indian Income tax Act and the Double Tax Treaty.

Equalisation Levy – Salient features

Relevant Sections

Features

Chargeability
[section 165(1) of Finance Act, 2016]

Equalisation levy is to be deducted @6% on amount paid to a non-resident, not having a PE in India for "specified services"

Specified services
[section 164 - clause (i)]

  • Online advertisement; or
  • Any provision for digital advertising space; or
  • Any other facility or service for the purpose of online advertisement; or
  • Any other services as may be notified by the Central Government

Payer
[section 165(1)]

  • Any person resident in India carrying on business or profession in India; or
  • A non-resident having a PE in India

Exclusions
[section 165(2)]

  • Recipient, i.e., the non resident has a PE in India and such income is effectively connected to the PE
  • Receipt does not exceed Rs. 1,00,000
  • Payment is not in respect of carrying on of business or profession

Payment due date
[section 166(2)]

7th day of the immediately following month

Requirement to furnish statement of specified service
[section 167]

  • Payer is required to furnish the statement of specified services with the jurisdictional Assessing Officer or any other authority prescribed by CBDT in this behalf
  • Revised / belated furnishing of statement permissible before the expiry of 2 years from the end of the financial year in which the specified service was provided

Manner of processing of statements
[section 168]

  • EL shall be computed after making adjustment for any arithmetical error in the statement
  • Interest, if any, to be computed
  • Any sum payable/ refundable would be determined
  • Intimation prepared and sent to the assessee specifying amount payable/ refundable
  • Refund due in pursuance to intimation to be granted to the assessee
  • Time limit – 1 year from the end of the financial year in which the statement is furnished

Rectification of mistake apparent from record
[section 169]

  • AO may amend any intimation within 1 year from the end of the financial year in which such intimation was issued
  • Rectification may be suo-motu or mistake brought to notice by the payer
  • Opportunity of being heard to be provided to the payer
  • AO to pass an order where the sum payable is enhanced / refund already made is reduced

Non-compliance
[section 170-172]

  • Interest @1% for every month of part of the month for delayed payment of EL
  • Additionally, penalty of amount equivalent to EL for failure to deduct may be imposed
  • Penalty of Rs. 1,000 for every day, or amount of EL, whichever is lower, may be imposed in case of failure to pay the levy after deduction
  • Penalty of Rs. 100 for each day may be imposed for failure to furnish statement until such failure continues

Appeal to CIT(A)
[section 174]

  • Appeal may be filed against the penalty order before the CIT(A) within 30 days of receipt of such order
  • Provisions of section 249-251 of the Income tax Act relating to filing an appeal with CIT(A) shall apply

Appeal to Tribunal
[section 175]

  • Appeal may be filed against the order of the CIT(A) passed under section 174 within 60 days of receipt of such order
  • Provisions of section 253-255 of the Income tax Act relating to filing an appeal with Tribunal shall apply

Amendments made in the Income tax Act, 1961

Exclusion from total income

Income subject to EL shall not be included in total income of the payee in terms of section 10(50) of the Income tax Act

Deductibility of expenses

New sub-clause (ib) has been inserted in section 40(a) of the Income tax Act as per which the consideration paid for specified service on which EL was leviable would not be deductible if EL has not been deducted or after deduction, not been paid before the due date of filing the return of income. Deduction may, however, be claimed in the year in which EL is deducted/ paid.

Equalisation Levy Rules, 2016

CBDT issued Equalisation Levy Rules vide Notification dated 27th May, 2016. A brief snapshot of the Rules, which provides the procedural framework for the compliances to be undertaken and appeal process, is given below:

Particulars

Section

Rule

Description

Payment of EL

166

4

  • To be deposited by 7th day of the immediately following month
  • ITNS 285 is to be used as challan

Furnishing of statement of specified services/ annual return

167

5 & 6

  • Form No. 1  to be furnished electronically by the payer on or before 30th June of the next year
  • AO is empowered to issue notice requiring the payer to file the statement within 30 days of receipt of notice

Processing of statement of specified services

168

7

  • Form No. 2 (notice of demand) shall be served upon the payer after determination of any levy, interest or penalty payable
  • Intimation to be deemed as notice of demand in other cases

Filing appeal with the CIT(A)

174

8

  • Form No. 3 to be filed within 30 days of receipt of penalty order
  • Filing fee – Rs. 1,000
  • Appeal to be filed electronically

Filing appeal with the ITAT

175

9

  • Form No. 4 to be filed within 60 days of receipt of the CIT(A) order
  • Filing fee – Rs. 1,000
  • Appeal to be filed electronically

 

Legal Suvidha Providers is a Team of Dedicated Professionals including CAs, CMAs, CSs and Lawyers who are well versed with the Taxation Law and can assist you in your Tax Compliances with the Best Consultancy and Compliance Services. You can contact us at support@legalsuvidha.com or can call us at 09599937963 or 07906012752.

 



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