Context

Recently, while justifying the 2% equalisation levy (EL) imposed by India on the supply of services by multinational enterprises, finance minister Nirmala Sitharaman said it is a sovereign right to tax revenues earned from operations in the country.

About

What is Equalisation Levy (EL)?

• Equalization Levy (EL) is a tax leviable on consideration received by a non-resident for specified services.
• Specified Service means online advertising or provision of digital space for online advertisement or any other service for purpose of online advertising.

Applicability of Equalisation Levy:

• Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient.
• The two conditions to be met to be liable to equalisation levy:
• The payment should be made to a non-resident service provider;
• The annual payment made to one service provider exceeds 1,00,000 in one financial year.

About EL (Equalization Levy) 2.0:

• The Finance Act, 2020 expanded the scope of the EL to include all non-resident e-commerce operators providing ‘e-commerce supply or services.
• As per the expanded provisions, with effect from 01 April 2020, a non-resident e-commerce operator is liable to pay Equalization Levy at the rate 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 already covered by the Equalization Levy under Finance Act 2016.
• Thus, services such as online advertisement, provision of digital space for online advertising, or related services are not subject to EL 2.0.
• EL 2.0 is applicable on the online sale of goods or online provision of services or a combination of both by the non-resident e-commerce operator.
• EL 2.0 is applicable where non-resident e-commerce operators supply to

(a) person resident in India

(b) Person using an Indian IP address

(c) Non-resident in specific cases.

• The threshold limit attracting equalization 2.0 is Rs 2 Crores.
• The EL 2.0 shall be levied only if the aggregate amount of consideration for such specified services received in a previous year exceeds Rs. 2 crores.
• EL 2.0 is charged at the rate of 2% on the amount of consideration received/receivable by the non-resident.
• The non-resident e-commerce operator is liable for deposit the EL amount to the Government treasury & complies with the statutory requirements viz. the filing of EL return, etc.
• The onus of compliance cast on the non-resident e-commerce operator EL 2 is not applicable where E-commerce operator has a Permanent Establishment in India and the e-commerce supplies or services are effectively connected with such Permanent Establishment.