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Background

The global economy is undergoing a tremendous change with technology shaping the way that businesses operate, people work and customers consume, thus making Digital Economy an evolving and independent economy. India is also facing challenges in terms of characterization of income, and the lack of universal consensus on adopting the new nexus based significant economic presence, as well as the likely difficulties faced in attributing profits under existing rules.

‘Equalisation Levy’ introduced as a self-contained code to tax Digital Ecommerce transactions under Chapter VIII of Finance Act, is intended to serve as a way to tax a multi-national enterprise`s significant economic presence in a country, which are able to avoid taxes completely in the source jurisdiction under the existing international taxation rules which require non-resident enterprises to have a Permanent Establishment in order to attract taxability.

 

Equalization Levy Rules, 2016

CBDT has notifies that Equalisation levy introduced by Chapter VIII under the Finance Act shall come into force from June 1, 2016[1] and has also notified Equalization Levy Rules, 2016 (‘the Rules’)[2] for carrying out the said provisions relating to Equalisation Levy. The Rules provide for the following:

  • Rounding off

Consideration for specified services, equalisation levy, interest, penalty and refund payable, to be rounded off the nearest multiple of ten rupees

  • Payment of equalisation levy

Every assessee who is required to deduct and pay Equalisation Levy shall deposit the same to the account of the government by remitting the same to RBI or SBI or other authorized bank accompanied by an equalisation levy challan

  • Statement of Specified services

Statement of Specified services to be furnished in Form 1 by June 30th following the financial year. The statement has to be filed and verified electronically using digital signature/electronic verification code. Principal Director General of Income-tax (Systems) shall lay down the data structure and standards for obtaining electronic verification code

  • Where an assessee fails to furnish the statement of specified services, the Assessing Officer may issue notice calling for statement of specified services to be furnished within 30 days
  • Where any levy, interest and penalty is payable under Chapter VIII, the Assessing Officer shall issue the notice of demand in Form 2
  • Appeal to CIT(A) under section 174(1) shall be filed and verified electronically in Form 3 by the person who is authorized to verify the statement of specified services
  • Appeal to ITAT under section 175(2) shall be filed and verified electronically in Form 4

 

Way Forward

With the rules in place, time has come to start taking action, since the statement of specified services procured starting June 1, 2016 has to be reported in the statement to be furnished by June 30, 2017. Further owing to the subjectivity attached to the interpretation of the term “Specified Services”, it is advisable to review the nature of services obtained from foreign national to analyze if the same could fall in the meaning of “Specified Services” OR if advertising services are embedded in other services obtained from foreign national.  It is pertinent to note here that the liability has been cast upon the payer to withhold and deposit the “Equalisation Levy” with the Government of India and failure to comply would lead to disallowance of such expense.



[1] CBDT Notification 37/2016 dated May 27, 2016

[2] CBDT Notification 38/2016 dated May 27, 2016


This article is a thought piece of Nangia & Co. Chartered Accountants