Google Tax - Equalisation Levy (S. 165)

In today’s scenario, everybody is using digital services resulting into expansion of information and communication technology and digital economy is growing significantly faster than the global economy as a whole.

Concept of Equalization levy has been introduced by Hon’ble Finance Minister in Finance Bill 16 under Chapter VIII which was levied on specified digital services to tax digital e-commerce transactions (B2B transactions) and this levy is effective from 1^st June 2016. Equalisation levy would be applicable @6% on gross consideration payable for a ‘Specified Service’. CBDT has notified the equalization rules as well for this levy on 27^th May 2016 which will be effective from 1^st June 2016. The concept of equalization levy along with their rules is explained under in simple words:

CONCEPT REVOLVES AROUND PE (Permanent Establishment) DECLARATION OF NON RESIDENT SERVICE PROVIDER

Equalisation Levy: Equalisation Levy has been defined as “Tax leviable on consideration received or receivable for any specified service under the provisions of this chapter”. The levy would be under a separate self contained code and is not part of the income-tax law.

‘Specified Service’ is defined as follows:

(1) Online advertisement;

(2) Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;

(3) Any other service which may be notified later.

Applicability: The levy will be applicable on the payments received by a non-resident service provider from an Indian resident or an Indian Permanent Establishment (‘PE’) of a nonresident, in respect of the specified service.

The levy would not be applicable to nonresident service providers having a PE in India, as they will be subjected to a regular PE basis taxation.

 

Who needs to comply: Every resident person and foreign company (having a PE in India) is required to withhold Equalisation Levy while making payment to a non-resident service provider.

Compliance requirements: Service recipient is required to make compliance and also file an annual statement in respect of services received.

Consequences of a delayed payment: Delayed payment carries a simple interest at 1% of the outstanding levy for every month or part thereof is delayed.

Consequences of non-compliance by service recipient:

1. Penalty for failure of payment:

a) Equalisation Levy not deducted: Penalty equal to the amount of levy failed to be deducted (along with interest and depositing of the principal levy outstanding)

b) Equalisation Levy deducted but not deposited: Penalty equal to INR 1,000/day subject to the maximum of the levy failed to be deducted (along with interest and depositing of the principal levy outstanding)

c) Disallowance of such expenditure in the hands of the payer (unless the defect is rectified)

2. Penalty for failure of filing statement of compliance: INR 100/day for each day the non-compliance continues

3. Prosecution: If a false statement has been filed then the person may be subjected to imprisonment of a term up to 3 years and a fine

RELEVANT EQUALISATION LEVY RULES

Rule 3: Rounding off of consideration for specified services

Amount of consideration for specified services and the amount of equalization levy, interest, penalty payable, and the amount of refund due under the provisions of Chapter VIII of the Finance Act 2016 shall be rounded off to the nearest multiple of ten rupees.

Rule 4: Payment of Equalisation Levy

Equalisation levy will be paid to the credit of the central government within 7 days from the end of the month in which consideration has been paid and the amount will be paid through Challan 285.

Rule 5: Statement of specified services

Statement of specified services shall be furnished u/s 167(1) in form no. 1 duly verified in the manner indicated therein, and may be furnished by the assessee in the following manner namely:-

a)    Electronically with DSC 

b)    Electronically through EVC

Statement shall be furnished on or before 30^th June immediately following that financial year.

Rule 6: Time limit to be specified in the notice calling for statement of specified services

Where an assessee fails to furnish the statement within the time specified in sub rule (2) of rule 5, the Assessing officer may issue a notice to such person requiring him to furnish, within 30days from the date of service of notice, the statement in the form prescribed in rule 5 and verified in the manner indicated therein.