E-commerce companies provide a platform where supply and procurement of goods and services takes place digitally. Consequently, it has resulted into an evolution of various new business models, where huge business transactions are made and availed through telecommunication network. Inadequacy of such a tax regime governing income generated through digital business transactions has posed a set of new challenges to taxing authorities. Challenges in form of difficulties in characterizing the nature of payment, valuation of data, establishing a taxing jurisdiction, location and user contribution have created a fertile ground for tax dispute.
In a move to bring clarity in this regard and to put digital business transactions of substantial value under scanner of tax authorities, government introduced “Equalization Levy” colloquially called “Google Tax” via Budget 2016.
Equalization levy is a direct tax which is imposed on income accrued to Non-Indian resident e-commerce companies (like Facebook, Amazon, Google) from India.
In other words, If a person makes payment exceeding Rs.1 Lakh to Amazon, for availing the space of advertisement on amazon’s site, then in a financial year, Equalization Tax @6% shall be levied on the gross amount paid to Amazon.
Conditions for levying the Tax.
- Payment must be made for B2B services (Business To Business) not for B2C(Business to Consumer)
- Payment must be made to Non-resident e-commerce companies which do not have permanent establishment in India.
- Payment must be made for specified services.
- Payment made to one service provider in a financial year must exceed Rs.1 lakh.
Services charged under Equalization Levy
- Advertisement on online platform
- Provisions related with online advertisement facilities or services related to online advertisement services.
Presently only advertisement services comes under the scope of EL, In future more services are likely to be notified.
Mechanism of Tax/ Tax Burden
Mechanism of collecting tax is TDS means burden of paying Tax lies on Indian Businessmen. The person making payment for B2B services needs to withhold 6% levy on the gross amount paid to Non-resident service provider.
In other words: If
Amit has to pay Rs. 3,00,000 to Amazon for availing advertisement services for promotion of his product. Then Amazon will charge him Rs. 3,18,000.
Amit needs to withhold the taxed amount at the rate of 6% on gross value i.e Rs.18,000 for submitting it to Indian Tax Authorities. Thus, Amit is liable to pay Rs 3,00,000 to Amazon after deducting tax at source.
Due Date for furnishing tax/statement
Person responsible for deducting the Equalization levy has to pay the amount to the credit of central government within a period of 7 days from the end of month in which levy was withheld.
For example if Amit made payment to service provider in the month of May,2019 then he has to deposit Equalization Tax so deducted, till 7th of June, 2019.
Equalization levy statement(form 1) needs to be submitted on and before 30th June of financial Year ended. It is an annual statement.
Consequences of Non-compliance
- In case of delay in Payment– Interest charged @1% on the outstanding levy for every month and part thereof delayed.
- In case of failure of Payment-
- EL deducted but failed to deposit- Rs.1000/Day subject to the maximum of levy outstanding (along with interest and principle sum of due levy)
- EL not deducted at source- Penalty equal to the amount of tax failed to be deducted(along with interest and depositing of the principle sum of due levy)
- In case of failure to file statement of EL- Rs.100 for each day the non compliance continues.
- Prosecution- If the statement submitted is found to be false then the defaulter may be subjected to imprisonment for a term of 3 years and fine.
Equalization Levy is a big move in ensuring the tax payment by Online companies. In last two years the collection of Equalization Levy has certainly increased the revenues generated from online companies not having resident in India. The levy has proven a successful effort against the base erosion and shifting of profit from the high rate tax countries to lower rate jurisdiction.
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