Equalisation Levy

By : Neha Dhyani

Updated : Apr 6, 2022, 6:54

The Equalisation Levy 1.0 is a withholding tax that was administered in the year 2016 via the Finance Act. The Equalisation Levy rate was 6% and it was applicable to any particular service obtained by an Indian resident or a non-resident with a permanent and constant establishment in India. The Equalisation Levy of 1.0 is typically known as the "Google tax."

The Equalisation Levy 2.0 was issued in 2020 in order to impose the tax on non-residents of India. It required the amendment of the Financial Act 2016 to issue the newly administered tax. This tax is also known as the "Amazon tax," and it is directly levied on e-commerce supplies or services.

The Equalisation Levy 2.0 imposed a 2% Equalisation Levy on the amount of consideration obtained or receivable by a non-resident e-commerce operator having a business of 20 million rupees in a financial year from e-commerce services to people residing in India, a non-resident, or an individual who purchases goods and services using an Indian IP address.

Equalisation Levy - Issues

India and other foreign countries maintain a Double Taxation Avoidance Agreements (DTAA) that is expected not to cover the Equalisation Levy tax and it is anticipated that the tax credit will not be available for the Equalisation Levy paid in India. There is a chance that the e-commerce operator's home country jurisdiction recognises the Equalisation Levy as a sort of direct tax and permits the e-commerce operator to claim the tax credit. If India does not share a DTAA with the nations, then the e-commerce operator may be eligible to claim the tax credit.

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Equalisation Levy - Services Covered

  • Online advertising, any provision for digital advertising space, or services for online advertising are some of the specific services that are included by the Equalisation Levy.

Rate of Tax -

  • At the moment, the appropriate tax rate under the regulations of the Equalisation Levy is 6% of the gross amount to be paid.

Due Date of Furnishing the Equalisation Levy -

  • The Equalisation Levy is due on or before the 30th of June of each financial year. The deadline is sometimes extended as well.
  • The CBDT has extended the deadline for filing the Equalisation Levy Statement (Form-1) for FY 2020-21 to December 31, 2021.

Actions Taken Against Delayed Payments -

  • For each month or part of a month that the levy is late, interest is assessed at 1% of the unpaid levy.

Actions Taken Against Payment Failure -

  • In case the Equalisation Levy is not deducted, the penalty is charged equivalent to the total amount of levy that failed to be deducted.
  • If the Equalisation Levy is deducted but not deposited, a penalty of INR 1,000 per day is imposed, up to the maximum amount of the levy that was not deducted.

It can be concluded that the future of the Equalisation Levy is in the hand of India and the governmental approaches to bring amendments to the existing system. The impacts imparted by the Equalisation Levy are also very crucial to examine in order to achieve clarity in this matter.

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FAQs on Equalisation Levy

Q.1. What is the Equalisation Levy 1.0?

The Equalisation Levy 1.0 is commonly known as the Google tax, and it was introduced as part of the Finance Act in 2016. It was a withholding tax and no amendment to the Income Tax Act 1961 was required to introduce the same.

Q.2. What is the Equalisation Levy rate administered by the Finance Act, 2016?

Under the Finance Act of 2016, the EL rate was set at 6%. This implies the fact that the gross amount to be paid is presently subjected to a 6% tax rate.

Q.3. When is it required to pay the Equalisation Levy?

The operator should pay the Equalisation Levy in the next month after the purchase is made. The pay should be cleared by depositing the money with the central government within the first week of the month.

Q.4. Which services are required to pay the Equalisation Levy of 2.0?

Services like online e-commerce selling goods online, e-commerce operating and managing online service provisions require you to pay the Equalisation Levy of 2.0.