Equalisation Levy

Source: BS

Context: The government has proposed abolishing the 6% Equalisation Levy on online advertisements from April 1, 2025, through amendments in the Finance Bill 2025, benefiting platforms like Google, Meta, and X.

About Equalisation Levy:

• What it is: A tax imposed on non-resident digital service providers for services related to online advertisements and e-commerce transactions targeting Indian users.

• A tax imposed on non-resident digital service providers for services related to online advertisements and e-commerce transactions targeting Indian users.

• Adopted in:

• Introduced in the Finance Act, 2016 for online advertisements. Extended in the Finance Act, 2020 to e-commerce supplies and services.

• Introduced in the Finance Act, 2016 for online advertisements.

• Extended in the Finance Act, 2020 to e-commerce supplies and services.

• Aim: To ensure a fair tax system for foreign digital platforms generating revenue from Indian customers without having a physical presence in India.

• Categories under Equalisation Levy:

• Online Advertisement Services (from June 1, 2016): 6% levy on payments made to non-resident service providers for digital advertising services. E-Commerce Transactions (from April 1, 2020, till August 1, 2024): 2% levy on the value of e-commerce goods or services supplied or facilitated by non-resident e-commerce operators.

• Online Advertisement Services (from June 1, 2016): 6% levy on payments made to non-resident service providers for digital advertising services.

• 6% levy on payments made to non-resident service providers for digital advertising services.

• E-Commerce Transactions (from April 1, 2020, till August 1, 2024): 2% levy on the value of e-commerce goods or services supplied or facilitated by non-resident e-commerce operators.

• 2% levy on the value of e-commerce goods or services supplied or facilitated by non-resident e-commerce operators.

• It is levied on:

• Payments to non-residents for online advertisements or digital ad space. E-commerce supply of goods or services targeting: Indian residents. Individuals using Indian IP addresses.

• Payments to non-residents for online advertisements or digital ad space.

• E-commerce supply of goods or services targeting: Indian residents. Individuals using Indian IP addresses.

• Indian residents.

• Individuals using Indian IP addresses.

• Exemptions Provided:

• If the non-resident has a permanent establishment (PE) in India and the service is linked to that PE. Transactions below specified thresholds: ₹1 lakh for online advertisement services. ₹2 crore for e-commerce transactions. Personal use transactions, not related to business or profession.

• If the non-resident has a permanent establishment (PE) in India and the service is linked to that PE.

• Transactions below specified thresholds: ₹1 lakh for online advertisement services. ₹2 crore for e-commerce transactions.

• ₹1 lakh for online advertisement services.

• ₹2 crore for e-commerce transactions.

• Personal use transactions, not related to business or profession.

• Key Features of Equalisation Levy:

• Deduction Responsibility: The service recipient (Indian resident or non-resident with PE) deducts the levy and deposits it with the Central Government. Payment Schedule: Monthly or quarterly, with specific due dates depending on the type of service. Penalty for Non-Compliance: Equal to the amount of levy not deducted or paid; interest of 1% per month on late payments. Appeal Mechanism: Appeal to Commissioner of Income-tax (CIT) (Appeals) and Income Tax Appellate Tribunal (ITAT) available within prescribed timelines through Form No. 3 and Form No. 4. Revenue Exclusion: Income subjected to equalisation levy is exempt from income tax under Section 10(50) of the Income Tax Act.

• Deduction Responsibility: The service recipient (Indian resident or non-resident with PE) deducts the levy and deposits it with the Central Government.

• Payment Schedule: Monthly or quarterly, with specific due dates depending on the type of service.

• Penalty for Non-Compliance: Equal to the amount of levy not deducted or paid; interest of 1% per month on late payments.

• Appeal Mechanism: Appeal to Commissioner of Income-tax (CIT) (Appeals) and Income Tax Appellate Tribunal (ITAT) available within prescribed timelines through Form No. 3 and Form No. 4.

• Revenue Exclusion: Income subjected to equalisation levy is exempt from income tax under Section 10(50) of the Income Tax Act.