A. MEANING OF EQUALISATION LEVY
Equalisation levy (sometimes written as Equalization levy), means the tax leviable on consideration received or receivable for following services (termed as ‘digital advertisement services’) : –
- Online advertisement,
- Provision of digital advertising space, or
- Any other facility or service for the purpose of online advertisement.
- Any other service as may be notified by the Central Government (Till now no other service has been notified for equalization levy)
Note : –
Equalisation Levy is not a part of income-tax as it is introduced by way of separate chapter in the Finance Act, 2016. Like STT, it will remain a separate tax.
B. FEATURES OF EQUALISATION LEVY
Charged only on online advertisement services
Equalization levy shall be charged only on online advertisement services . It is not chargeable on other digital services like provision of online content, online data, provision of any facility or service for uploading, storing or distribution of digital content, etc.
Charged only for services
Equalization Levy is charged only for specified services . There is no equalisation Levy on goods sold by the non-residents through e-commerce companies. Thus, Equalisation Levy is not required to be deducted on goods purchased through E-commerce websites, like Amazon, Ebay, etc.
Advertisement service should be provided by the non-resident
Equalisation levy shall be charged only when advertisement services are provided by the non-resident. Equalisation levy seeks to cover only non-resident who earns advertisement revenue from India and avoid payment of income-tax (like Facebook, Google, Yahoo, etc.). Equalisation levy shall not be charged where the covered advertisement services provided by residents , as such person are already liable to pay income-tax on his global income.
Charged only on business to business (b2b) transactions.
Equalisation levy will be charged only on Business to Business (B2B) transactions. Any advertisement services taken by Individual for his personal purposes will not attract Equalisation levy. Such business may be carried on by a resident person or non-resident having PE in India . Thus, advertisement services taken by non-resident (having a PE in India) from another non-resident will also attract Equalisation levy.
CHARGE OF EQUALISATION LEVY – CONDITIONS FOR LEVY
Equalisation Levy is charged at the rate of 6% (w.e.f June 1, 2016) on payment for digital advertisement services (discussed above) provided all the following conditions are satisfied : –
- Consideration is paid or payable only for digital advertisement services;
- Consideration is paid or payable to non-resident person; and
- Consideration is paid or payable by a –
- Resident person carrying on business or profession ; or
- Non-resident having a PE in India.
EXAMPLE 1 : –
XYZ Pvt. Ltd. (Indian Company) has to make payment to a UK based company for accessing online content relating to industrial experience. Whether Indian company would be liable to deduct Equalization Levy while making payment to such foreign company ?
SOLUTION : –
Equalization levy shall be deducted only when payment is related to advertisement services. Thus, Equalization levy shall not be deducted on such transaction. However, Indian company has to ascertain whether such payment is liable for withholding tax under Income-Tax Act.
EXAMPLE 2 : –
ABC ltd. (Indian company) has placed an order to buy goods from an E-Commerce website, Amazon.com. Whether ABC ltd. is liable to deduct Equalization levy before making payment ?
SOLUTION : –
Equalisation levy is imposed only on advertisement services, and not on purchase of goods from E-commerce website. Thus, Indian company is not required to deduct Equalization levy on such transaction.
EXAMPLE 3: –
An Indian company has booked an advertisement slot on Red FM 93.5, an Indian radio station. Whether it is liable to deduct Equalization levy while making payment for such services?
SOLUTION : –
Equalisation Levy shall be charged only when it is made for online or digital advertisements, and the service provider is non-resident. In the instant case Red FM is a resident. Thus, Equalisation levy shall not be deducted in this case.
EXAMPLE 4: –
Mr. A wants to publish advertisement in matrimonial column of New York Times newspaper. Whether he is liable to deduct Equalisation levy ?
SOLUTION : –
Mr. A is not liable to deduct Equalisation levy while making payment of matrimonial advertisement. Equalisation levy is deducted only on Business to Business (B2B) transactions. Advertisement in matrimonial column is not intended to serve any business purpose of Mr. A.
EXAMPLE 5: –
Alibobo (foreign company) makes payment of Rs 5 lakhs to another foreign company for online advertisement. Alibobo does not have any PE in India. Whether it is liable to deduct Equalisation Levy from such payment to the foreign company ?
SOLUTION : –
Foreign company is liable to deduct Equalisation levy for advertisement payments, only when it has PE in India. In this case Equalisation levy is not chargeable as Alibobo does not have any PE in India.
EXAMPLE 6: –
X International (foreign company) makes payment of Rs 5 lakhs to W International (another foreign company) for online advertisement. X International Ltd. has PE in India and such advertisement is relating to the operations of the PE in India . Whether X is liable to deduct Equalisation Levy ?
SOLUTION : –
Foreign company would be liable to deduct Equalisation levy for advertisement payments only when it has PE in India. In this case Equalisation levy is chargeable as X International has PE in India.
PERSON LIABLE TO DEDUCT EQUALIZATION LEVY -SECTION 166
The following person, who avails services which are liable to equalisation levy, are liable to deduct such levy : –
- The person who is a resident, and is carrying on business or profession; or
- Non-resident having a permanent establishment in India
The equalisation levy shall be deducted from the amount paid or payable to a non-resident, where such payments are made for digital advertisement services. Equalization levy shall be deducted at the rate of 6%.
WHOSE INCOME IS LIABLE FOR DEDUCTION OF EQUALISATION LEVY?
Foreign internet companies (such as social media companies), search engines, media websites, that do not have any physical presence in India shall be liable to pay Equalization Levy.
However, Equalization levy shall not be charged if any of the following conditions are satisfied –
Non-resident providing advertisement service has a PE in India
Where the non-resident providing advertisement service has a PE in India and the advertisement service is effectively connected with such PE. Equalization levy intends to tax advertisement revenue of the non-residents, which escape from Indian income-tax. When advertisement revenue of non-resident is liable to income-tax in India due to the existence of its PE in India, then there is no need to apply Equalisation levy on such income.
The aggregate consideration is less than the prescribed threshold
Where the aggregate amount of consideration for advertisement services received or receivable, from each of the non-residents is Rs 1 lakh or less during the year. Such a threshold limit of Rs 1 lakh is specified for Equalization levy, so as to limit its impact and reduce the compliance burden on taxpayers.
Purpose of services is non-business
Where the payment for the advertisement service is not for the purposes of carrying out business or profession. The intention of the legislation is to cover only Business to Business (B2B) transactions under Equalization levy.
DUE DATE FOR PAYMENT OF EQUALIZATION LEVY
Equalization levy deducted during any calendar month, is required to be paid to the credit of the Central Government by the 7th day of the month immediately following the said calendar month. For example, Equalization levy deducted in the month of April, 2018 shall be paid on or before May 7, 2018. Such levy has to be deposited to the credit of the Central Government by remitting it into the Reserve Bank of India or in any branch of the State Bank of India or of any authorized Bank accompanied by an equalisation levy challan.
RATE OF EQUALIZATION LEVY
Equalisation levy shall be charged at 6% of the amount of consideration paid or payable to non-resident persons for digital advertisement services.
Note : –
The amount of consideration for digital advertisement, Equalization levy, interest and penalty has to be rounded off to the nearest multiple of Rs 10 [Rule 3 of Equalisation Levy Rules, 2016].