The document discusses India's equalization levy, a tax on digital services provided by non-resident companies without a permanent establishment in India. It was introduced in 2016 and expanded in 2020-21. The levy applies to online advertising and e-commerce operators with India-based revenues over INR 1-2 crore. It is collected at 6-2% rates. Exemptions and penalties for non-compliance are provided. The levy aims to address tax challenges from the digitalization and growth of e-commerce across borders.

1. I. Background
Over the period of time, the technology has change the way of business. Due to the expansion
in the information and communication technology, the supplies of digital goods and services
have undergone exponential growth which helps the business to expand without any national
boundaries.
The digitalization in the businesses has created the new opportunities of growth and earning. It
has also made it possible for the businesses to conduct themselves in ways that did not exist
earlier, and given rise to new business models that rely more on digital and telecommunication
network, do not require physical presence, and derives substantial value from data collected
and transmitted from such networks.
This new business models has created new tax challenges, typical in Income tax. Since, in e-
commerce, it is difficult to characterize the nature of payment and to establish a nexus
between a taxable transaction and taxing jurisdiction. Further, it is difficult to locate the
transaction, activity and identify the taxpayer for income tax purposes. In addition to the
above, the digital business had challenges physical presence-based permanent establishment
rules.

2. In order to the address the challenges; the Hon’ble Finance Minister has introduced the new
Chapter called “Equlisation levy” vide Finance Act 2016.
Further, vide Finance Act 2021, the Hon’ble Finance Minister amended the relevant provisions
and provides the certainty and clarification that transactions taxable under income-tax are not
liable for equalisation levy. Further, he also clarifies the applicability of equalisation levy on
physical/offline supply of goods and services.
II. Introduction
As stated above, the concept of Equlisation levy was introduced vide Finance Act, 2016 with
effect from June 1st 2016. The Finance Act has introduce the provision in Chapter VIII and
provided the section 163 to Section 180. The provision of Equlisation levy extends to whole
India except the state of Jammu and Kashmir.
III. Detail discussion of the relevant provisions
1. Scope of Equalisation Levy
In order to understand the applicability of equalisation levy we have to analysis section 165 and
when you read the section we have found that the essential ingredients of equalisation levy
which is as under:
(i) Amount of consideration in excess of one Lakh rupees.
(ii) Specified services received or receivable
(iii) Service receipt, who is Non Resident, and
(iv) Services Provider, who is
a. Resident in India and carrying business in India; or
b. Non-Resident having permanent establishment in India.
When all the above ingredients are in your transaction then you are liable for equalisation levy
at the rate of 6% on amount of consideration.
However, in Finance Act 2020, the Scope of equalisation Levy was further extended and in this
regard, a new section 165A was introduced. According the section, e-commerce operators are
also covered in the provision of this chapter.
For the purpose of this chapter "E-commerce operator" means
 a non-resident

3.  who owns, operates or manages digital or electronic facility or platform
 for online sale of goods or
 online provision of services or both;
Due to the said section, now essential ingredients of equalisation levy is as under”
Section 165 Section 165A
Amount of
consideration
In Excess of INR 1 lakh In excess of INR 2 Crore
Services/ Goods
received or receivable
Specified service” means
 online advertisement; or
 any provision for digital
advertising space or any other
facility or service for online
advertisement; or
 any other service as may be
notified by the central
government on this behalf.
e-commerce supply or services
made or provided or
facilitated by it
Service receipt, Who is  Resident in India and carrying
business in India; or
 Non-Resident having permanent
establishment in India.
 Resident in India
 Non Resident in specified
circumstances; or
 Buy such goods or
services or both using
internet protocol address
located in India.
Services Provider Non-Resident E-commerce operators
Rate of Equalisation
Levy
6% 2%
2. Non-applicability of Equalisation Levy as per section 165
Equalisation levy is not applicable in the following cases:
 If the non-resident providing specified service has a permanent establishment in India
and income from such specified service is effectively connected to this permanent
establishment; or

4.  Where the payment for specified service by the person resident in India (or the
permanent establishment in India) is not for the purpose of carrying out business or
profession; or
3. Non-applicability of Equalisation Levy as per section 165A
Equalisation levy is not applicable in the following cases:
 Where e-commerce operator making supply of goods or services has a permanent
establishment(P.E.) in India and such e-commerce supply is effectively connected with
such P.E.;
 Where equalisation levy is levied under the provisions given under section 165 of the
Finance Act, 2016; or
IV. Other relevant provisions for Equalisation levy
1. Collection and Recovery
The amount of equalisation levy shall be paid to the government's credit by the 7th day of the
month following the month. The equalisation levy is deducted by every person, being a resident
carrying on business or profession a non-resident who has a permanent establishment in India.
If the equalisation levy is not deducted, the payer has to pay the central government.
However, every e-commerce operator shall quarterly pay equalisation levy to the credit of
government within the following due dates:
For the quarter ending Due Date
30 June 7 July
30 September 7 October
31 December 7 January
31 March 31 March
2. Due Date of Furnishing the statement
The due date of furnishing the statement of equalisation levy in Form No.1 is on or before June
30 of the Financial Year. This is the annual statement.
Keeping in mind the non-availability of the utility of filing certain forms and technical glitches
faced by the taxpayers during the financial year 2021-2022, CBDT has extended the due date
for furnishing the statement of Equalisation Levy for the F.Y. 2020-21 to August 31, 2021.

5. However, every e-commerce operator shall furnish a Statement electronically within a specified
time in a specified form in respect of the e-commerce supply of goods or services during the
financial year.
3. Consequences of delayed payments
Interest
Simple Interest at the rate of 1% for every month or part of a month shall be payable when the
equalisation levy collected is not credited by the payer to the account of the Central
Government within the due date of payment.
Penalty
Situation Penalty (in addition to paying equalisation levy and
interest)
Failure to deduct equalisation
levy (wholly or partly)
A penalty equal to the amount of equalisation levy
Failure to deposit with
government
Rs. 1000 for each day of default (not to exceed amount of
equalisation levy)
Failure to furnish a statement Rs. 100 for each day of default
No penalty is imposed if the assessee proves to the Assessing Officer that there was a
reasonable cause for the failure given above.
4. Exemption under Income Tax
When an equalisation levy is deducted under the provisions of section 165/165A, an income is
exempt under section 10(50) of the Income Tax act.
However, this exemption shall not apply for royalty/fees for technical services taxable under
the Income Tax Act read with double taxation agreements.
Authored by CA Manish Gupta & CA Rahul Pareva
For any queries or suggestions, email at info@manishanilgupta.com
Disclaimer!

6. This article is meant purely for knowledge and educational purposes. It contains only general
information and references to legal content. It is not legal advice, and should not be treated as
such.
Source:https://www.manishanilgupta.com/blog-details/equalisation-levy-a-comprehensive-
analysis