A new chapter “Equalisation Levy” is introduced by Finance Act 2016, in income tax act, 1961. By introduction of this levy many untaxed transactions of non resident companies will come under its radar. This tax is also called Google Tax, since companies like Google & Facebook are mostly likely to effected by this levy. The concept of this levy is similar to TDS.
It is a tax deducted from any payment made to non residents for any specified transactions. It is applicable from 1st June 2016 @6%.
For example, M/s ABC Ltd. receives specified services of Rs. 10 lakh from a non resident person for their business. M/s ABC Ltd. will have to deduct Equalisation levy @6% i.e Rs. 60,000/- from the payment and give only Rs. 9.40 Lacs to the Non Resident.
To whome it is applicable?
- a person resident in india and carrying on business or profession.
- a non resident having permanent establishment in India.
When it is not applicable?
- When the non resident who is providing specified transactions have a permanent establishment in India and the specified transaction is effectively connected with the permanent establishment.
- When the aggregate amount of consideration for specified transactions does not exceeds Rs. 1 Lakh.
- When the payment for specified transactions is not for carrying out business or profession in India.
What are the specified services for Equalisation levy?
Specified services includes the following services:
- Online Advertisement
- Any provision of digital advertising space or any service for the purpose of online advertisement.
The central Government may add more services under specified services.
Why Equalisation Levy introduced ?
But why this new concept of Equalisation levy is introduced? Let us understand it.
As per income tax, a non resident’s Indian income is always taxable. But there is an exception to this rule.
If a non resident does not have permanent establishment in India, then any income accrues in India is not taxable at all.
On the above principle, it is provided that there is no need to deduct TDS for such non residents.
For example M/s XYZ Pvt. Ltd., an Indian company get the work done from ABC Ltd., a Chinese company. The ABC Ltd. does not have any branch in India, which means it has no business connection in India.
Hence any payment made by XYZ Ltd. to ABC Pvt. Ltd. will not be liable for TDS deduction since the such income of ABC Ltd. is not taxable in India. It may get taxable in China.
But there are many international transactions which do not get taxed at all, not a single time.
This is possible due to the fact that in many countries of the word the tax rate are Zero. These countries are called Tax heaven.
Many MNC’s open new companies in these countries to save tax.
The Organization for Economic Cooperation and Development (OECD), India is also member of it, has decided that a mechanism should be framed so that no single international transaction should remain untaxed.
For this reason, India has also adopted Base Erosion and Profit Shifting (BEPS) project under Action Plan 1 recommended by OECD.
For this reason concept of equalisation levy is introduced so that no transaction remains untaxed.
What is charging section for Equalisation Levy?
Equalisation levy is part of many other tools, that India has introduced to make international transaction taxable.
A new chapter “Chapter VIII” is introduced in Income Tax Act, 1961 to provide the provisions of Equalisation levy.
Section 165 is the Charging section for equailsation levy.
When to deduct Equalization levy?
It is deducted on date of payment or credit, whichever is earlier.
What is the Due date of payment of equalization levy?
It is paid on or before 7th of following month in which it is deducted.
For example if it is deducted in August, then it is paid on or before 7th of September.
What is Form and due date of Return?
A return shall be filed after the end of each financial year in Form No. 1 and on or before 3oth June immediately following that financial year.
The return can be furnished in the following manner:
- Electronically under digital signature
- Electronically through electronic verification code
Can we revise the return?
The return so filed may be revised before end of two years from the end of the financial year in which the specified service was provided.
What it the interest for late payment of Equalisation levy?
Section 170 provides for Interest on late payment of equalization levy.
Interest @1% p.m. shall be paid for every month or part of month by which such levy is delayed.
The central government will notify for the date of applicability of Equalisation levy.
What is the penalty for failure to deduct or pay equalisation levy?
Section 171 deals with penalty for failure to deduct or pay equalisation levy.
There are two situations:
- If fails to deduct and pay:
In addition to interest under section 170, he shall pay penalty equal to amount of equalisation levy.
- If deduct but fails to pay:
In addition to interest under section 170, he shall pay penalty of Rs. 1000 for every day during which failure continues, however the amount of penalty can not exceeds the equalisation levy.
What is penalty for failure to file the return?
Section 172 deals with penalty for failure to file Return.
In such case penalty of Rs. 100 per day will be levied during the period which failure continues.
Who is empowered to make rules for equalisation levy?
Under Section 179 Central Govenment is empowered to make rules for carrying out the provisions of this chapter.
Central Govenment has notified Equalisation Levy Rule 2016 by notification No 38/2016
Is payment to Google liable for Equalisation Levy ?
Many publishers are paying to Google for adsense services in India. The Payment is made to Google India in Rupees.
Since payment is made to the Google India, so equalisation levy is not applicable as it is not applied to company having permanent establishment in India.
The same is also confirmed to one of my known company which has received the mail from google, stating that equalisation levey is not applicable to them.
Check the following documents for full “Chapter VIII” on Equalisation Levy
Please comment for any query on Equalisation Levy.