Equalization Levy on digital transaction.

Over the last few years, Information Technology has been taken as a new exponential measure in India and globally for the new models of business, which has increased in the demand for digital services. In the current scenario, we have a big reliance on the internet for the e-business. As a result, new business models have created new challenges in the chapter of income tax.

Here we have discussed and answered the questions in an easily understandable format, so as to provide a basic understanding of the concept.

Q 1. What is Equalisation Levy?

Ans:  Equalisation Levy was introduced in 2016 with the intention of taxing the digital transaction i.e. income accruing to e-commerce company from India.

Q 2. When Equalisation Levy is applicable?

Ans:  It is applicable when,

• Amount paid for ‘online advertisement’, ‘any provision of service related to online advertisement’.
  • Therefore, for any other service other than online advertisement, equalization levy not applicable.

• The gross amount paid is more than Rs. 100000
• If the amount is less than Rs. 100000, then not applicable.
• The flow of service.
(i) RESIDENT (Service Receiver) paying consideration to NON-RESIDENT (Service Provider)
(ii) NON-RESIDENT (Service Receiver) (having a permanent establishment in India) paying consideration to NON-RESIDENT (Service Provider)
• If Non-Resident (Service Provider) is having a permanent establishment in India and such service provided is having a direct connection with this establishment, then Equalisation Levy is not applicable.

Q 3. What is the rate of Equalisation levy?

Ans:  6% on the gross amount charged.

Q 4. How to charge the equalization levy from the payment?

Ans: Every resident person and non-resident (having a permanent establishment in India) is required to withhold Equalisation Levy while making payment to a non-resident service provider.

The concept of chargeability shall be based on grossing up the amount. 

Q 5. Deposit of Equalisation Levy to the government?

Ans: The amount deducted should be paid to the government, the same as TDS, i.e. 7th of next month by challan no.285.

• However, if payment is delayed, then it carries a simple interest at 1% of the outstanding levy for every month or part thereof.

Q 6. Furnishing of Annual statement of Equalisation Levy?

Ans:  Service recipient is required to make compliance and also file an annual statement in respect of services received in form no. 1 on or before 30th June of the financial year ended, in which details are required for a non-resident person also.

Q 7. What if there is non-compliance by service recipient?

Ans:  The consequences of each default are mentioned below;

• Penalty for Equalisation Levy is not deducted: Penalty equal to the amount of levy failed to be deducted 

• Penalty for Equalisation Levy deducted but not deposited: Penalty equal to INR 1,000/day subject to the maximum of the levy failed to be deducted 

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

• Prosecution for false statement furnished: 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.
• However, if the service receiver makes any default mentioned above then there will be disallowance of such expenditure in the hands of the payer (unless the defect is rectified).

Procedure for Accounting and Payment of Equalisation Levy-

• The person making the payment should provide the details of payment to be made during the month before 3rd day of the next month as per the attached format, and sent it to the accounts department.
• Accounts department to pass entry after grossing up the payment of equalization levy, if applicable and deposit the same to the government in challan no. 285 before 7th and pass the entry.
• After the close of the financial year, accounts to file the annual return in Form no. 1 before 30th June for the tax deposited.