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October 30, 2020

CBDT amends Equalisation levy Rules, 2016

by CA Shivam Jaiswal in ICAI

CBDT amends Equalisation levy Rules, 2016

Equalisation Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India. It was aimed at taxing business to business transactions and was applicable to consideration received or receivable for specified services provided. The CBDT vide Notification dated 28th October, 2020, introduced the Equalisation levy (Amendment) Rules, 2020, in order to amend the Equalisation levy Rules, 2016.

What do you mean by Equalisation Levy?

Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The following conditions are 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 Rs. 1,00,000 in one financial year.

The Equalisation Levy is levied on gross receipts from e-commerce supply. Further, the Equalisation Levy is outside the ambit of income tax as it was introduced through Finance Act, 2016, and is therefore not covered by double taxation avoidance agreements (DTAAs). Consequently, non-residents subjected to Equalisation Levy cannot claim relief under DTAAs and will not be entitled to credit for Equalisation Levy paid in India in their country of residence.

What is the charge of Equalisation Levy?

The charge of equalisation levy shall be at the rate of 6% of the amount of consideration for any specified service received or receivable by a person, being a non-resident from:

  • a person resident in India and carrying on business or profession; or
  • a non-resident having a permanent establishment in India

When shall Equalisation Levy not be applicable?

The equalisation levy shall not be charged, when:

  • the non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment
  • the aggregate consideration for specified service received/receivable in a previous year by the non-resident from a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed Rs 1 lakh
  • the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession

What is the applicability of Equalisation Levy on e-commerce operators?

From the 1st of April, 2020, equalisation levy was charged at 2% of the amount of consideration received/receivable by an e-commerce operator from e-commerce supply or services made, provided or facilitated by it:

  • To a person resident in India
  • to a non-resident in the specified circumstances
  • to a person who buys such goods, services or both usinginternet protocol address located in India

Specified circumstances as mentioned in the 2nd point means:

  • sale of advertisement, which targets a customer, who is a residentin India or acustomer who accesses the advertisement though internet protocol address located in India; and
  • sale of data, collected from a person who is resident in India orfrom a person who uses internet protocol address located in India

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When shall Equalisation Levy not be applicable to an e-commerce operator?

The equalisation levy shall not be charged to an e-commerce operator:

  • where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in Indiaand such e-commerce supply or services is effectively connected with such permanent establishment
  • where the equalisation levy is leviable under section 165
  • sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs 2 crores during the previous year

Let us now understand as to what amendments were brought into effect with the introduction of Equalisation levy (Amendment) Rules, 2020

New Rule 2(aa) has been inserted which defines “electronic verification code”

According to Rule 2(aa), electronic verification code means a code generated for the electronic verification of the person furnishing the statement of specified services as per the data structure and standards laid down by the Principal Director- General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be.

Rule 3 has been amended

Rule 3 of Equalisation levy Rules, 2016 pertained to Rounding off of consideration for specified services, equalisation levy, etc. In the old Rule 3 it was stated that, the amount of consideration for specified services and the amount of Equalisation levy, interest and penalty payable, and the amount of refund due, under the provisions of Chapter VIII of the Act shall be rounded off to the nearest multiple of Rs 10 and, for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of 10, then, if the last figure in that amount is 5 or more, the amount shall be increased to the next higher amount which is a multiple of 10 and if the last figure is less than 5, the amount shall be reduced to the next lower amount which is a multiple of 10 In the amended Rule 3, the words “specified services” is removed

Substitution of Rule 4

Rule 4 pertains to payment of equalisation levy. According to the amended Rule 4, the assessee or e-commerce operator, who is required to deduct and pay equalisation levy, shall pay the amount of such levy, by remitting it into the RBI or in any branch of the State Bank of India or of any authorised Bank accompanied by an equalisation levy challan.

Substitution of Rule 5

Rule 5 pertains to Statement of specified services. According to the amended Rule 5, the said statement required to be furnished under section 167(1) or 167(2) shall be in Form No. 1, duly verified in the manner indicated therein, and may be furnished by the assessee or e-commerce operator, as the case may be.

Furnishing Form-No 1 shall be in the following manner:

  • electronically under digital signature; or
  • electronically through electronic verification code.

Form No. 1 required to be furnished under section 167(1) shall be furnished on or before the 30th of June immediately following that financial year.

The Principal Director-General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, for the purpose of ensuring secure capture and transmission of data, shall:

  • lay down the procedure for electronic filing of Form No.1
  • lay down the data structure, standards and manner of generation of electronic verification code, for the purpose of verification of the person furnishing the said form
  • be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished; and
  • specify the manner of furnishing the revised statement required to be furnished undersection 167(2)

Rule 6 has been amended

  • Rule 6 of Equalisation levy Rules, 2016 pertained to time limit to be specified in the notice calling for statement of specified services.
  • According to the old Rule 6,where an assessee fails to furnish the statement within the time specified in rule 5(2), the AO may issue a notice to such person requiring him to furnish, within 30 days from the date of service of the notice, the statement in the Form prescribed in rule 5 and verified in the manner indicated therein.
  • Rule 6 of Equalisation levy Rules, 2020pertains to time limit to be specified in the notice calling for statement of specified servicesor e-commerce supply or services.
  • Now according to the amended rule 6, where an assessee or e-commerce operator, as the case may be, failsto furnish the statement within the time specified in rule 5(2), the AO may issue a notice to such person requiring him to furnish, within 30 days from the date of service of the notice, the statement in the Form prescribed in rule 5 and verified in the manner indicated therein.

Proviso to Rule 7 has been amended

Rule 7 of Equalisation levy Rules, 2016 pertained toNotice of demand. Proviso to Rule 7 has now been amended. In the proviso, the words “assessee or e-commerce operator, as the case may be,” shall be substituted, for the word “assessee”.

Rule 8 has been amended

Rule 8 pertains to Form of appeal to Commissioner of Income-tax (Appeals) [CIT(A)].

RuleAs per Equalisation levy Rules, 2016As per Equalisation levy (Amendment) Rules, 2020
8(1)An appeal under section 174(1) to the CIT (A) shall be made in Form No. 3 in the following manner: electronically under digital signature; orelectronically through electronic verification code.An appeal under section 174(1) to the CIT (A) shall be made in Form No. 3 in the following manner: electronically under digital signature; orelectronically through electronic verification code.
8(2)The form of appeal, shall be verified by the person who is authorised to verify the statement of specified services under rule 5, as applicable to the assessee.The form of appeal, shall be verified by the person who is authorised to verify the statement under rule 5, as applicable to the assessee or e-commerce operator, as the case may be
8(3)Any document accompanying Form No.3 shall be furnished in the manner in which the Form No.3 is furnished.Any document accompanying Form No. 3 shall be furnished in the same manner in which the Form No. 3 is furnished.
8(4)The Principal Director General of Income-tax (Systems) shall- lay down the procedure for electronic filing of Form No.3;lay down the data structure, standards and manner of generation of electronic verification code, for the purpose of verification of the person furnishing the said form; andbe responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished.The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, for the purpose of ensuring secure capture and transmission of data, shall: lay down the procedure for electronic filing of Form No.3lay down the data structure, standards and manner of generation of electronic verification code, for the purpose of verification of the person furnishing the said form; andbe responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished.

Rule 9 has been amended

Rule 9 of Equalisation levy Rules, 2016 pertained to Form of appeal to Appellate Tribunal. In the said rule, the words “assessee or e-commerce operator, as the case may be,” shall be substituted, for the word “assessee”.

It is also important to note that the format for Form No 1, Form No 3 and Form No 4 has also been amended by the Equalisation levy (Amendment) Rules, 2020.

The equalisation levy in India from June 1, 2016 is a presumptive tax on some specified services provided by non-residents in the ‘hard to tax’ digital sector. In a market dominated by a few big players, because of the network effect and cost characteristics, it corrects the obviously unfair advantage that some non-resident companies without permanent establishments (PEs) enjoy over domestic players tempting even resident digital companies to become non-residents.

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