In the Finance Act 2016, the government had introduced Equalization Levy as a type of direct tax which is withheld and paid to the government at the time of making payment to an online vendor registered outside India.
Types of Payments Attracting Equalization Levy
1) Nature of Payer
- person resident in India and carrying on business or profession; or
- non-resident having permanent establishment in India
2) Types of Services
- online advertisement, sale of digital advertisement space; or
- e-commerce operator for e-commerce supply or services in the form of service charges, including sale of advertisement or sale of data collected from persons resident in India
3) Provided by Vendors that satisfy the following criteria
- Non Resident Service Provider; and
- Annual payment to one service provider exceeds Rs. 1,00,000/- in a financial year for advertising services
Rates of Equalization Levy
1) On Online Advertisement Services: 6% of gross consideration payable. Thus, an amount of 6% is to be deducted from the gross amount payable to the foreign vendor, and then deposited in India as equalization levy.
2) On E-Commerce Transactions (w.e.f. 01-Apr-2020): 2% of the gross amount paid to non-resident e-commerce platform provider, which provides services of Rs. 2 crore or more in a financial year in India
Compliance Forms & Dates
1) For Payment on Advertising Services: Pay through Challan No. ITNS 285 by the 7th of the subsequent month (month immediately succeeding the one in which payment is made or amount is recorded in the books of accounts as payable)
2) For Payment on E-Commerce Services: Pay through Challan No. ITNS 285 on quarterly basis as per the following schedule.
Apr - Jun: by 7th Jul
Jul - Sep: by 7th Oct
Oct - Dec: by 7th Jan
Jan - Mar: by 31st Mar
3) Annual Return Filing: To be done on the Income Tax e-filing portal through Form-1. This has to be completed by 30th June immediately after the financial year ended on 31st March.
Interest & Penalties for Default
1) Interest on Late Payment: Interest @ 1% of the outstanding levy for every month or part thereof that it is delayed.
2) Penalty for Non Deduction: Penalty equal to the amount of levy failed to be deducted, in addition to the levy and interest thereon.
3) Penalty for Deducted but Not Deposited: Penalty equal to Rs. 1,000 per day subject to maximum amount of the levy failed to be deposited, in addition to the levy and interest thereon.
4) Disallowance of Expenditure under Income Tax unless deposited.
5) Penalty for Non Filing of Return: Rs. 100 per day of non filing
6) Prosecution: If false statement is filed, a person may be punished with 3 years of imprisonment and fine.
Legal Provisions
