With Globalization-Digitalization and Industrial Revolution, there have been significant changes in working of a business. Advertisement is one of the ways through which people are expanding their business globally. Hence people are advertising globally as it is said that, stopping advertising to save money is like stopping your watch to save time. Hence new business models have come with new tax challenges as people advertise about their business beyond their territory of country with the boon of globalization.
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.
II. Applicability “EL 1.0”:
Equalization levy (EL 1.0) introduced as a direct tax at 6% on payment made to a non-resident by an Indian resident (Business Transactions) with an annual payment exceeding of Rs. 1,00,000 in a financial year in respect of online advertisements and any provision for digital advertising space or facilities/ service for the purpose of online advertisement
XYZ Ltd. has advertised in Google (USA) to expand his business. The advertising cost is Rs. 1,50,000.
- Here as the services availed by ABC Ltd. is from a foreign company (Google) which is exceeding Rs. 1,00,000 threshold limits. Hence, Facebook will charge ABC Ltd. for Rs. 1,50,000 & ABC Ltd. will deduct the TDS/levy at the rate of 6% (Rs. 9,000) before making the payment.
III. Due Dates for payment and Return Filing:
Tax has to be deposited by 7th of the next month from the date of transaction & furnish the Equalization Levy Statement on or before 30th June of Financial Year ended.
IV. Penalty-Late fees & Interest:
- Interest is charged at 1% of the outstanding levy for every month or part thereof is delayed.
- If Equalization Levy is not deducted, penalty equal to amount of levy failed to be deducted. If deducted but not deposited will be Rs. 1,000 per day maximum to amount of the levy.
- Penalty for late filing of Statement is Rs.100 per day till the non-compliance continues.
V. Expansion of Scope “EL 2.0”:
The Indian government further expanded the scope of EL in the Finance Act, 2020 to include a levy of 2%, effective from 1 April 2020, on the consideration received/receivable by an e-commerce operator from the following transactions (e-commerce supply or services):
- Goods sold by e-commerce operators through online medium or
- Provision of Services provided by the e-commerce through online medium; or
- Goods and services sold by e-commerce operators through online medium, facilitated by the e-commerce operator; or
- Any combination of the above-mentioned activities
The levy is applicable on consideration received by the e-commerce operator on the above transactions from a:
- Person resident in India
- Non-resident, where the:
- Sale of advertising to Indian resident customer, or a customer who accesses the advertising though an IP address located in India; and
- Sale of data collected from Indian resident or from a person who uses an IP address located in India
- Person who buys goods or services, or both, uses an IP address located in India.
Thus, the levy captures online sales of any goods or provision of any services by or through a non-resident e-commerce operator.
VI. Exclusions for “EL 2.0”:
EL 2.0 is not applicable where the consideration is related to permanent establishment of the e-commerce operator or subject to advertising EL (applicable @6% in such cases) or is less than Rs. 20 lakhs per annum.
There are numerous interpretational issues leading to practical challenges in compliance as the EL 2.0 is introduced i.e. 1st April 2020, but in this COVID situation, people are not able to comply with compliances. But if the government provides clarifications or makes amendments, it would provide some clarity and certainty to investors and any litigation at a later stage on interpretational issues can be avoided.