India Digital tax – Equalisation levy tax

  • Income Tax
  • article
  • High Court
  • Supreme Court
  • financeseva

In 2020, the government finally widened the scope of equalisation levy, to apply at the rate of 2% on the consideration from the online sale of goods or provision of services facilitated or provided by Non resident e-commerce operators, w.e.f. 1 April 2020.  

Besides applying to transactions with Indian tax residents, Equalisation levy also applies to select transactions between two NRs, for example, sale of ads targeting on Indian clients or sale of information collected from Indian residents or with an IP address situated in India. 

Budget 2021 has provided certain clarifications on the  equalisation levy which are as follows-  

1. Government has clarified that the services which are subject to tax as royalty or fees for technical services under the India domestic tax laws would be out of the ambit of EL. 

This aspect required clarity since there was a question whether royalty payments for software transactions or payments for technical services will be subject to a 10% rate laid down under the income tax law or equalization levy at 2%.  

Now , it has been clarified that there would not be any double taxation  for e-commerce operators and therefore consideration eligible to tax as royalty or fees for technical services would not be again taxable to equalization levy. 

2. What Qualifies as E-Commerce Supply or Service    -Now, the government has clarified that e-commerce supply or service will be subject to equalisation levy when any of the following activities take place online: 

  • Acceptance of the offer for sale.
  • Placing the purchase order.
  • Acceptance of the purchase order. Payment of consideration.
  • Supply of goods or provision of services, or entirely.

The clarification suggests equalisation levy would even cover brick-and-mortar firm businesses that have an e-commerce model, pure e-commerce model, marketplace model and an intermediary as well.  

Offline transactions that may have even a minor digital element could be potentially covered. 

3. Equalisation levy will apply on the entire sale consideration- 

It has proposed an amendment that states that the amount received or receivable from e-commerce or services should include: 

Consideration of sale of goods irrespective of whether the e-commerce operator owns the goods. 

Consideration of services regardless of whether service is provided or facilitated by the e-commerce operator. 

Now following transactions would fall within scope of Equalisation levy: - 

Payment gateways and payment aggregators that can only facilitate the online payment for an offline transaction. 

An online market that takes a commission to sell someone's goods may have to pay tax on not only the commission but the entire sale amount.  

Now, if an Indian resident purchases goods from eBay US or Amazon Netherlands, they will have to pay a levy on the entire sale amount and not just on the commission earned by them.