Equalisation levy : Important things you should know

What is equalisation levy

Equalisation levy is a direct tax, which was introduced with the intention of taxing digital transactions. Chapter VIII of the Finance Act, 2016 deals with “Equalisation Levy”.

To whom is it applicable

Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment inIndia shall deduct equalisation levy from the amount paid or payable to a NR in respect of the specified service.

What is meant by specified services

Specified service means:-

(i) Online advertisement;
(ii) Any provision for digital advertising space or any other facility or service for the purpose of online advertisement;
(iii) Any other service as may be notified by the CG.

What is the basis for levy

Chapter VIII of the Finance Act, 2016, titled “Equalisation Levy”, provides for an equalisation levy of 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.

Is there any relief to the small players in the digital domain

In order to reduce burden of small players in the digital domain, it is also provided that no such levy shall be made if the aggregate amount of consideration for specified services received or receivable by a non-resident from a person resident in India or from a non-resident having a permanent establishment in India does not exceed ₹1 lakh in any PY.

Further, equalisation levy shall not be charged where the payment for the specified service by the person resident in India or the permanent establishment in India, is not for the purposes of carrying out business or profession.

What is the time period for the remittance of equalisation levy

The equalisation levy so deducted during any calendar month shall be paid by every assessee to the credit of the CG by the 7th of the month immediately following the said calendar month.

Equalisation levy deducted during any calendar month is to be paid to the credit of the Central Government by remitting it to the Reserve Bank of India or the State Bank of India or any other authorized bank, accompanied by an equalisation levy challan.

What are the consequences of failure to deduct equalisation levy

Any assessee who fails to deduct equalization levy shall, notwithstanding such failure, be liable to pay the levy to the credit of the CG by the 7th of the month immediately following the said calendar month. Thus, if the assesseeresponsible for deducting equalisation levy, fails to so deduct, he has, in any case, to pay such levy to the credit of the CG by the 7th of the monthimmediately following the said calendar month.

At what rate interest is to be paid by the assessee in case of delayed payment

Every assessee, who fails to credit the equalisation levy or any part thereof within 7th of the month following the calendar month in which it is deducted to the account of the CG, shall pay simple interest at the rate of 1% of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed.

What are the penal provisions for failure to deduct or pay equalisation levy

In such situations, the following provisions shall apply:-

• Failure to deduct equalisation levy: In addition to payment of equalisation levy and interest, penalty equal to the amount of equalisation levy that he failed to deduct would be leviable.

• Failure to remit equalisation levy to the CG on or before 7th of the following month, after deduction: In addition to paying the equalisation levy and interest, a penalty of Rs. 1,000 for every day during which the failure continues is leviable. However, such penalty shall not exceed the amount of equalisation levy that he failed to pay.

What are the exemptions available under section 10 in respect of equalisation levy

In order to avoid double taxation, section 10(50) provides exemption of any income arising from providing any specified service on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 comes into force, and chargeable to equalisation levy under that Chapter.

What are the provisions as contained in section 40(a)(ib) with respect to Equalisation Levy

In order to ensure compliance with the provisions this Chapter, section 40(a)(ib) provides that if any consideration is paid or payable to a NR for a specified service on which equalization levy is deductible, and such levy has not been deducted or after deduction, has not been paid on or before the due date U/s 139 (1), then, such expenses incurred by the assessee towards consideration for specified service shall not be allowed as deduction.

However, where in respect of such consideration, if the equalization levy has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified U/s 139(1), such sum shall be allowed as deduction in computing the income of the PY in which such levy has been paid.