Equalisation levy also known as Google Tax, is tax at the rate of 6% on online advertisement and any provision for digital marketing space.
E-commerce Activities are now also covered w.e.f. 01st April 2020.
Purpose – With the increase of online digital advertising market specially with Google and Facebook it was realised by tax authority that these companies are making money from Indian market and consumers, however, not paying any tax due to non-presence of Permanent Establishment in India.
Meaning of Equalisation Levy
Equalisation levy means the tax leviable on consideration received or receivable by a Non-resident from Indian resident, for specified services relating to online advertising.
Online advertising means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network for advertising purposes.
Equalisation Levy doesn’t find place exactly in Income tax act. It was introduced through Chapter VIII of the Finance Act, 2016.
Equalisation levy comes into effect from 01st June 2016 and applicable all over the India, except Jammu and Kashmir.
How is Equalisation Levy calculated?
Equalisation levy at the rate of six per cent of the amount of consideration for any specified service received or receivable by a person, being a non-resident.
Example – ABC limited has been billed Rs 100 by Facebook US LLC then Rs 6 will be deducted and paid as equalisation levy and balance Rs 94 to Facebook.
However, if the Facebook insist to give them Rs 100 as billed then the amount needs to be grossed up. i.e 100 * 6 / 94 = Rs 6.39. ABC will pay Facebook Rs 100 and deposit Rs 6.39 as equalisation levy.
Further note, that the amount of levy needs to be rounded off to nearest multiple of ten rupees.
What services are covered?
This part of article covers EL on online advertising only.
Conditions for applicability of EL
- Services are given by Non-resident to
- Indian resident and carrying on business or profession
- Non-resident having PE in India
- Non-resident service provider should not have permanent establishment in India (PE)
- The aggregate amount of consideration does not exceed Rs 1 lakh in financial year.
Permanent Establishment includes a fixed place of business through which the business of the enterprise is carried on.
Procedure for depositing EL
Penalty for late deposit or filing
- Late deposit of EL will attract 1% interest for the month or part of the month.
- Late filing of Form 1 will attract Rs 100 per day penalty during the failure period.
- Further, more penalties other than interest is provided for:
- Failure to deduct EL – Penalty equal to EL
- Failure to deposit EL – Rs 1000 per day, maximum equal to EL.
- Penalty is not imposable if tax payer proves that there was reasonable cause.
Special provisions for Equalisation Levy on E-Commerce Transactions
From 01st April 2020, Equalisation levy @ 2% percent will be levied on e-commerce transactions.
In simple terms, E-commerce operator, providing e-commerce goods or services to receivers, is liable to pay EL at the rate of two per cent of the consideration.
1 – E-Commerce operator means:
A non-resident who owns, operates or manages digital facility or platform for online sale of goods or online provision of services or both.
not having PE in India
Turnover is less than two crores during financial year
2 – E-Commerce supply or services means:
Online sales of goods owned by the e-commerce operator
Online provision of services provided
Online sale of goods or provision of services or both, facilitated by the e-commerce operator
Except online advertisement and related activities
3 – Receiver of Goods or Services means:
Person Resident of India
Non-resident if – Sale of advertisement, which targets Indian customers; or Sale of data, collected from Indian resident.
Due date of payment of EL for E-commerce
The equalisation levy is required to be paid by non-resident e-commerce operator on a quarterly basis within seven days from the end of quarter i.e. 7 July, 7 October, 7 January and 31st March.
Tax treaty benefits may not be available in many cases, as the provisions of equalisation levy are not part of the income-tax law.