Budget 2024: 2% Equalization Levy Abolished

The Finance Minister presented the Union Budget 2024 in the parliament today and made many changes in tax compliance via the Budget this year.

Amendment of provisions related to the Equalisation Levy

Chapter VIII of the Finance Act, 2016 related to the equalization levy was amended by the Finance Act, 2020 to provide for the imposition of an equalization levy (EL) of two per cent on the amount of consideration received/ receivable by an e-commerce operator from an e-commerce supply or services.

An “e-commerce operator” is a non-resident who owns, maintains, or manages a digital or electronic facility or platform for the online sale of goods, the supply of services, or both.

The levy is imposed on the amount of consideration received or receivable from–

(i) online sale of goods owned by the e-commerce operator; or

(ii) online provision of services provided by the e-commerce operator; or

(iii) online sale of goods or provision of services or both, facilitated by the e-commerce operator; or

(iv) any combination of the above-mentioned activities.

However, the levy does not apply if the e-commerce operator has a permanent establishment (PE) in India and the e-commerce supplies or services are properly linked to that PE.

The levy is applicable on consideration received or receivable by the e-commerce operator from e-commerce supply or services made or provided or facilitated by it–

(i) to a person resident in India;

(ii) to a non-resident from–

(a) sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement through an IP address located in India; and

(b) sale of data, collected from a person who is resident in India or from a person who uses an IP address located in India; and

(iii) to a person who buys goods or services, or both, using an IP address located in India.

Several stakeholders have expressed concern that the scope of the 2% equalisation levy is vague, resulting in an increased compliance burden. In light of this, it is recommended that the 2% equalisation levy not apply to consideration received or receivable for e-commerce supplies or services on or after August 1, 2024. Any service subject to the equalisation levy was exempt from sub-section (50) of section 10 under specified conditions.

As a result of the revoke of the 2% levy, it is proposed that income derived from e-commerce supplies or services made, provided, or facilitated on or after April 1, 2020, but before August 1, 2024, fall solely within the scope of clause (50) of Section 10 of the Act.

These amendments will take effect from the 1st day of August 2024.