Equalisation Levy

Equalisation Levy

Subject – Economy

Context – Surge in equalisation levy, too; net direct tax collection up over 73 per cent

Concept –

• Equalisation Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India. It is aimed at taxing business to business transactions.
• The government introduced vide Budget 2016, the equalisation levy to give effect to one of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan.

Applicability of Equalisation Levy –

• Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy:
  • The payment should be made to a non-resident service provider;
  • The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

Services Covered Under Equalisation Levy –

• Currently, not all services are covered under the ambit of equalisation Levy. The following services covered:
  • Online advertisement
  • Any provision for digital advertising space or facilities/ service for the purpose of online advertisement.

Equalisation Levy at present –

• Equalisation levy at 6% has been in force since 2016 on payment exceeding Rs 1 lakh a year to a non-resident service provider for online advertisements.
• It is now applicable for e-commerce companies that are sourcing revenue from Indian customers without having tangible presence here in the country.
• The amendments to the Finance Act, 2020 had expanded the ambit of the equalisation levy for non-resident e-commerce operators involved in supply of services, including online sale of goods and provision of services, with the levy at the rate of 2% effective April 1, 2020.
• The tax applies on e-commerce transactions on websites such as Amazon.com. Google in particular as the tax applies on advertising revenue earned overseas if those ads target customers in India.