Equalisation levy a sovereign right, FM

Finance Minister Nirmala Sitharaman recently justified India's 2% equalization levy (EL) on multinational corporations' delivery of services, claiming that it is a sovereign prerogative to tax profits gained from activities in the country.

What is the Equalisation Levy (EL)?

• The Equalization Levy (EL) is a tax levied on the compensation received by a nonresident for specific services.
• The term "Specified Service" refers to online advertising, the supply of digital space for online advertising, or any other service used for online advertising purposes.

Applicability of Equalisation Levy:

• The Equalisation Levy is a direct tax that the service receiver withholds at the moment of payment.
• To be liable for the equalization levy, two requirements must be met:
• Payment should be made to a non-resident service provider./span>
• One service provider receives more than 1,00,000 in yearly payments in a single fiscal year.

About EL (Equalization Levy) 2.0:

• The Finance Act of 2020 broadened the scope of the EL to encompass all non-resident e-commerce businesses offering 'e-commerce supplies or services'.
• According to the enlarged requirements, beginning April 1, 2020, a non-resident e-commerce operator is required to pay an Equalization Levy of 2% on the consideration received/receivable from e-commerce supply or services.
• Salient features of (Equalization Levy) EL 2.0:
• The Equalization Levy 2.0 does not apply to transactions covered by the Equalization Levy under the Finance Act of 2016.
• Thus, EL 2.0 does not apply to services such as online advertising, the supply of digital space for online advertising, or other comparable activities.
• EL 2.0 applies to non-resident e-commerce operators who sell things online, provide services online, or do both.
• EL 2.0 applies to non-resident e-commerce businesses that provide to

1. 1. Person resident in India
   2. Person using an Indian IP address
   3. Non-resident in specific cases.

• The threshold for equalization 2.0 is Rs 2 crore.
• The EL 2.0 will be imposed only if the total amount of consideration received for such defined services in the preceding year exceeds Rs. 2 crore.
• EL 2.0 is levied at a 2% rate on the amount of consideration received/receivable by the non-resident.
• The non-resident e-commerce operator is liable for depositing the EL amount to the Government treasury & complies with the statutory requirements viz. the filing of EL return, etc.
• The onus of compliance on the non-resident e-commerce operator EL 2 does not apply if the e-commerce operator has a Permanent Establishment in India and the e-commerce supplies or services are effectively linked to such a Permanent Establishment.