Is Equalisation Levy Part of Income Tax Act

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Equalisation Levy is a tax that is imposed on specific digital services provided by non-resident companies to Indian customers. It is not explicitly a part of the Income Tax Act, but rather a separate levy introduced through the Finance Act of 2016. The levy targets digital services such as online advertising, software updates, and cloud computing, which are often difficult to tax through traditional income tax mechanisms. It aims to create a level playing field for domestic businesses and ensure that non-resident companies pay their fair share of taxes in India.

Equalisation Levy: An Overview

The Equalisation Levy, introduced in India in 2016, is a tax levied on certain non-resident service providers such as online advertising companies, digital content platforms, and other similar services. It is not a part of the Income Tax Act and is instead governed by the Finance Act, 2016.

Levy Mechanics Under Equalisation Law

  • Taxable Amount: The levy is calculated on the gross revenue earned by the non-resident service provider from its Indian operations.
  • Rate of Levy: The current levy rate is 2%.
  • Tax Deduction at Source (TDS): The levy is deducted at source by the Indian entity making payments to the non-resident service provider.

Applicability of Equalisation Levy

The Equalisation Levy applies to non-resident service providers who:

  • Provide digital advertising services.
  • Operate online platforms for digital content consumption.
  • Offer online software as a service (SaaS) or platform as a service (PaaS).
Threshold for Equalisation Levy
Fiscal Year Threshold (Gross Revenue)
2016-17 ₹ 10 lakh
2017-18 onwards ₹ 2 lakh

Note: The levy is not applicable if the non-resident service provider has a permanent establishment in India.

Equalisation levy was introduced in the year 2016 through an amendment to the Income Tax Act, 1961. Equalisation Levy is a levy imposed on certain specified services like online advertisement, digital advertising space or any other facility or service for the display of advertisements or any other audio visual content. The Equalisation Levy is a part of the Income Tax Act, 1961 and is levied under section 166(3) of the Income Tax Act, 1961.

Computation of Equalisation Levy

  1. The Equalisation Levy is computed on the gross amount of the services provided by the assessee.
  2. The Equalisation Levy is charged at the rate of 2% on the gross amount of the services provided by the assessee.
  3. The Equalisation Levy is not applicable to services provided by an assessee whose gross turnover from the provision of such services does not exceed Rs. 1 crore during the financial year.

Equalisation Levy: A Part of Income Tax Act

Equalisation Levy, introduced in the Finance Act of 2016, is a tax imposed on certain non-resident e-commerce companies that operate in India. It is a part of the Income Tax Act, and its purpose is to level the playing field between domestic and foreign businesses.

Threshold Limit

The Equalisation Levy is applicable to non-resident companies that meet the following threshold limit:

* They have an aggregate revenue of over INR 200 crores from online advertisement services in India in a financial year.

Companies that do not meet this threshold limit are not subject to the Equalisation Levy.

Exemptions

There are certain exemptions from the Equalisation Levy, including:

  • Companies that are registered in India
  • Companies that have a permanent establishment in India
  • Companies that are engaged in providing online services that are not advertisement services

Additionally, the Equalisation Levy does not apply to transactions between related parties, where both parties are located outside India.

Tax Rate and Assessment

The Equalisation Levy is charged at a rate of 6%, and it is calculated on the gross amount of revenue earned from online advertisement services in India.

The Equalisation Levy is assessed and collected by the Income Tax Department. Non-resident companies that are liable to pay the Equalisation Levy must file a return and pay the tax within 30 days of the end of the financial year.

Consequences of Non-Compliance

Non-compliance with the Equalisation Levy provisions can result in penalties and interest charges. Additionally, the Income Tax Department may take enforcement actions against non-compliant companies.

Sr. No. Nature of Service Equalisation Levy Rate
1 Specified service 2%
2 Service provided by an assessee with gross turnover not exceeding Rs. 1 Crore Nil
Table of Exemptions from Equalisation Levy
Exemption Criteria
Registered in India Company must be registered and incorporated in India
Permanent establishment in India Company must have a physical presence in India
Non-advertisement services Company must not be providing online advertisement services
Related parties outside India Transactions must be between related parties located outside India

Equalisation Levy: An Overview

Equalisation levy is a tax imposed on certain specified services provided by non-resident businesses to Indian customers. It is levied under the Finance Act, 2016, and is not a part of the Income Tax Act.

The levy is aimed at taxing digital transactions and online services originating from outside India but consumed in India. It helps level the playing field between domestic and foreign businesses and addresses tax avoidance practices by non-resident businesses.

Consequences of Non-Compliance with Equalisation Levy

  • Penalties: Non-compliance with the equalisation levy can result in penalties under the Finance Act, 2016.
  • Interest Charges: Interest will be levied on the unpaid equalisation levy amount.
  • Blocking of Services: In case of repeated non-compliance, the government may block access to the non-resident business’s services in India.
  • Reputational Damage: Non-compliance can harm the reputation of the non-resident business and affect its ability to operate in India.

Table: Equalisation Levy Rates

Service Levy Rate
Online advertising 6%
Digital platform services 2%
E-commerce services 2%

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