Published: 14th Mar, 2022
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.
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· Equalization Levy is imposed under the Finance Act 2016 and not as a part of the Indian Income Tax Act, 1961. · The Government introduced Equalization Levy vide Finance Bill, 2016, with the intention of taxing the digital transactions. · As per Sec 165 of Finance Act 2016, a person resident in India or a non-resident having a permanent establishment in India shall deduct EL at 6% on the consideration paid to non-resident towards specified services. |
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.
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In October 2021, G20 countries approved a global deal to adopt a 15 per cent minimum corporate tax and reallocate taxing rights for large profitable multinational enterprises (MNEs) to countries where they sell products and services. |
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