EQUALISATION LEVY ON E-COMMERCE OPERATORS

Introduction:

Over the last few years, the role of information technology in the business has grown manifolds. The advent of 4G & 5G technologies have also supported digital transition of businesses. Nowadays, the business may be conducted through digital mediums and that too without crossing the territorial boundaries. The traditional rules of taxation based on residency rules or permanent establishment thus fails in such scenario. The e-commerce giants have been earning huge profits without paying commensurate taxes in any country. As such, a strong need was asserted by the international community to tackle the taxation issues in transactions conducted in cyber space. Therefore, the Organisation for Economic Co-operation and Development (OECD) under its BEPS project recommended a withholding tax on payments for digital goods and services provided by foreign e-commerce operators.

In consequence, the Finance Act 2016 introduced equalisation levy on procurement of digital advertising services from non-residents with effect from 01-06-2016 on the recommendations of BEPS Action Plan. The scope of equalisation levy is further expanded by Finance Act 2020 to cover non-resident e-commerce operators. In this article, we will have a detailed study of the provisions of equalisation levy on non-resident e-commerce operators in India.

Charge of Equalisation Levy on non-resident e-commerce operators

Finance Act, 2020 inserted a new section 165A which obliges the non-resident e-commerce operators providing e-commerce supply or services to a person resident in India, to pay equalisation levy @ 2% of the amount of consideration received or receivable by such operator from e-commerce supply or services made or provided or facilitated by it.

What is Equalisation Levy

‘Equalisation Levy’ means the tax leviable on consideration received or receivable for:
(a) Any specified services (Finance Act 2016) or
(b) E-commerce supply or services (Finance Act 2020)

What is “e-commerce supply or services”

“E-commerce Supply or services” means:
(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 activities listed in clause (i), (ii) or clause (iii).

What is the effective date of applicability of equalisation levy on e-commerce supply or services

Equalisation Levy under section 165A is to be charged effectively from 01^st April, 2020.

When is Equalisation Levy chargeable under section 165A

Equalisation levy shall be charged @ 2% of the amount of consideration received or receivable by a non-resident e-commerce operator from e-commerce supply or services made or provided or facilitated by it-
(i)   To a person resident in India; or
(ii)  To a non-resident in certain specified circumstances; or
(iii) To a person who buys goods or services or both using internet protocol address located in India.

Specified circumstances here means:
(a) Sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement through internet protocol address located in India;
(b) Sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India;

In what circumstances Equalisation levy shall not be charged on e-commerce operators

In the following three cases, equalisation levy shall not be charged under section 165A:
(a) Where the e-commerce operator has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment; or
(b) Where the equalisation levy is leviable under section 165 (digital advertising services); or
(c) Where the sales, turnover or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs. 2 Crores during the previous year.

What is the rate of Equalisation Levy under section 165A

The rate of Equalisation Levy is 2% of the amount of gross consideration received or receivable by the e-commerce operator for e-commerce supply or services.

What is the minimum threshold limit of turnover for equalisation levy under section 165A

Equalisation Levy shall be chargeable from the non-resident e-commerce operator only where the turnover or gross receipts from such supplies is Rs. 2 crores or more.

Who is liable to pay Equalisation Levy under section 165A

The equalisation levy under section 165A (read with section 166A) shall be paid by the non-resident e-commerce operator providing e-commerce supply or services.

What is the due date of depositing Equalisation Levy under section 166A

Equalisation Levy according to section 166A is required to be deposited by the e-commerce operator on quarterly basis  on challan no. ITNS 285 as follows:

Is any interest payable on delay in depositing Equalisation Levy

In case of delay in depositing Equalisation Levy, the e-commerce operator shall be liable to pay interest on delayed payment of levy @ 1% of such levy for every month or part of a month by which such payment is delayed in accordance to section 170.
For example: In case of delay of 2 month & 13 days, interest 1%*3 = 3% will be chargeable on the amount of Equalisation Levy.

What are the penalties for failure to pay Equalisation Levy under section 166A

If an e-commerce operator fails to pay the whole or any part of the equalisation levy as required u/s 166A, he shall be liable to pay a penalty equal to the amount of equalisation levy that he failed to pay.

What are the returns to be furnished for reporting equalisation levy by an e-commerce operator

• Every e-commerce operator liable to pay equalisation levy shall furnish an annual statement containing all particulars, as prescribed in Form No. 1 on or before 30^th June immediately following that financial year.

• The Form should be signed and verified electronically under digital signature or electronic verification code.

• If Failure to furnish within the time allowed or notices any errors:

(a) It may furnish annual statement in Form No. 1 or revised statement at anytime before the expiry of 2 years from the end of the financial year in which the e-commerce supply or services was made or provided or facilitated.
(b) If the e-commerce operator fails to furnish annual statement, the A.O. may serve a notice upon the e-commerce operator requiring him to submit the statement, within 30 days from the date of service of the notice.

What are the consequences of non-furnishing of annual statement in Form No.-1 or furnishing false statement

• Penalty of Rs. 100 per day during the period such failure continues. However, no penalties shall be imposed unless the e-commerce operator is given an opportunity of being heard.
• Prosecution: If a person files false statement, he shall be punishable with imprisonment for a term which may extend to 3 years and with fine.

Other General Provisions:

Sections Referred: