EQUALISATION LEVY (FINANCE ACT, 2016)
Organization
for Economic Co-operation and Development’s (OECD’s) had considered, base erosion and profit shifting (BEPS) Action
Plan, to impose an equalization levy (i.e., a tax to equalize the tax burden on
remote and domestic suppliers of similar goods and services) as one option to
tax digital transactions. The final Action report did not recommend introducing
such a levy as an internationally agreed standard at this stage, it did state
that countries could introduce one in their domestic laws as an additional
safeguard against BEPS, provided they respect existing treaty obligations, or
include them in their bilateral tax treaties.
In
the Indian fiscal budget 2016, Finance Minister proposed inserting a new
chapter "Equalization Levy" in the Finance Bill 2016 to provide for
an equalization levy.
Here it is
imperative to highlight a key issue that this levy has been proposed in the
Budget as part of the Finance Bill and not as income tax so the person would
not be able to take benefit of tax treaties to avoid double taxation in their
home countries. (This issue is unaddressed yet)
Concept of Equalisation
Levy as per Chapter VIII of Finance Act, 2016:
Equalisation
Levy Means:
Tax
leviable on
Consideration
received or receivable
for
Specified service
Specified Service Means:
1. Online Advertisement
2. any provision for digital
advertising space or any other facility or
service for the purpose of online
advertisement
3. Any Other Service as Notified by
Government.
Rate of Levy: At
the Rate of 6% of consideration
Applicability:
Amount
of consideration
for
any specified services
received
or receivable
by a
person being a non-resident
FROM
1. Resident in India carrying
business or profession or
2. Non-Resident having PR in India
But shall NOT BE CHARGED, where
1. Non-resident providing the
specified service has PE in India and
such services are effectively connected
with such PE.
2. Aggregate amount received or
receivable in a P.Y is Less than
Rs.1Lakh.
3. Payment for specified service is
not for purpose of business or
profession.
Date of Applicability: 1st June 2016 N.No. 37/2016 F No. 370142/12/2016-TPL.
Date of Payment of Levy: 7th day of the month immediately following the calendar
month.
Furnishing of Statement: Statement in Form-1 to be furnished before 30th June annually.
Penalty/
Consequence of Non-Compliance:
Equalization levy not deducted:
Equal to the amount of the levy that failed to
deduct (along with
interest and the outstanding levy amount)
Equalization levy was deducted
but not deposited:
The
penalty is equal to INR1,000 for each day the failure
continues, but not to exceed the amount of
the equalization levy
that the assesse failed to pay (along with
interest and the
outstanding levy amount)
Disallowance of exp.
Expense
disallowed u/s 40 of income tax Act. unless the defect is
rectified)
Failure to file statement:
INR100 for each day the noncompliance
continues
Prosecution:
If a false statement has been filed, the
person may be subject to
imprisonment of a term of up to three
years and a fine
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