All about Equalisation levy and amendments in Finance bill 2020

All about Equalisation levy and amendments in Finance bill 2020:

Finance act 2020 has brought major changes in Equalization levy which are applicable from 01 – April -2020. But before that just giving slight information on Equalisation levy.

Introduction:

Section 163 to 172 deals with Equalisation levy definition, interest, penalty, filing of the annual statement, the penalty for failure to furnish statements.

Challan no 285 is used to deposit Equalisation levy.

Form -1 on income tax site is to be filed on or before 30th June for the financial year.

Reason for levying Equalisation levy:

In the era of the digital world, many MNC’s operate through different means in various countries. These MNC’s usually don’t have physical offices or we can say no permanent establishment in other countries including India. Govt was finding it difficult to tax such companies as these companies were exploiting various loopholes in withholding tax.

So Govt vide finance bill 2016, introduced Equalisation levy of 6 percent. However, the scope was very limited and certain ‘Specified service ‘ was only covered such as online advertisement was only covered. Any resident or non-resident carrying business in India or having a permanent establishment in India had to charge a 6 percent Equalisation levy when making payments for such specified service.

Exceptions were put out that no levy would be done if payments do not exceed 1 lakh or where non-resident to whom payment is to be made has a permanent establishment in India or such specified service is not rendered for business or professional purpose.

Amendments:

With time, govt found that scope of such specified services be extended and vide finance act 2020 govt has amended the section and its addition to existing provisions, they have inserted following provisions which would apply to e-commerce being non-resident providing below transactions :

1) Online sales of goods owned by an e-commerce operator

2) Online provision of services by an e-commerce operator

3) online supply of goods or services on platform facilitated by an e-commerce operator

4) combination of any of the above

The recipient for the purpose of this act would be any resident or non-resident using an IP address in India ( i.e not only business entities but any non-business entities )

The levy, in this case, would be 2 percent and unlike earlier in case of specified services where tax was to be collected by the recipient business entity and was deposited to govt. In this case, responsibility is being cast on e-commerce operators to deposit such levy with govt, however, tax needs to be paid on a quarterly basis.

Consequently, an income tax exemption is proposed for e-commerce operators on income subject to Equalisation levy.
However, certain exceptions have been provided which states that these provisions won’t apply if :

a) E-commerce operator(non-resident) having permanent establishment in India

b) If the turnover of such operator is less than 2 crores during the previous financial year

c) Online advertisement where the levy is already 6 percent.

Impact:

This would affect online operators like Netflix, Amazon prime or any grocery apps who are based in tax Havens and currently exempt from any type of taxes in India or doesn’t have any permanent establishment in India. However, as we have seen earlier in cross border transactions, any tax levy or withholding taxes are borne by Indian service receiver, who in turn increases prices of goods or services. So, our subscription for accessing such online content is going to get expensive.

Interest:

Interest on delayed payment of tax would be charged at 1 percent per month or part of the month.

Penalty for failure to furnish statements on or before 30 June: Rs 100 per day.