What is Equalisation Levy ?

What is Equalisation Levy ?

  • Equalization Levy (EL) is a tax leviable on consideration received by a non-resident for specified services.
  • This specified service includes
    1. Online advertising
    2. Provision of digital space for online advertisement
    3. Any other service for purpose of online advertising

Imposition of Tax

  • Indian Government introduced Equalization Levy vide Finance Bill, 2016, with the intention of taxing the digital transactions.
  • It is imposed under the Finance Act 2016 and not as a part of the Indian Income Tax Act, 1961.
  • Section 165 of this Act says that a person resident in India or a non-resident having a permanent establishment in India shall deduct EL at 6% on the consideration paid to non-resident towards specified services.

How much tax imposed under FA 2016?

  • The threshold limit attracting equalization is Rs 1 Lakhs.
  • Equalization Levy is charged at the rate of 6% on the amount of consideration received/receivable by the non-resident.

Equalisation Levy 2.0

  • Indian Government introduced the Finance Act, 2020 which expanded the scope of the EL to include all non-resident e-commerce operators providing ‘e-commerce supply or services.
  • The threshold limit attracting equalization 2.0 is Rs 2 Crores.
  • EL 2.0 is charged at the rate of 2% on the amount of consideration received/receivable by the non-resident.
  • E-Commerce operator means a non-resident, who owns, operates, or manages a digital platform or electronic facility for online sale of goods or online provision of services, or both.

Finance Act 2021

  • The Finance Act 2021 inserted a clause under Section 164 of Finance Act 2016
  • It is clarified that e-commerce supply shall include one or more following activities undertaken online
    1. Acceptance of offer for sale
    2. Placing of purchase order
    3. Acceptance of purchase order
    4. Payment of consideration
    5. Supply of goods or provision of services, partly or wholly.

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