Equalisation levy on e-commerce operator - Section 165A (Inserted by Finance Act, 2020)

Background of Equalisation Levy

As per Memorandum to Finance bill, 2016, a need for equalisation levy was felt because of: -

"With the expansion of information and communication technology, the supply and procurement of digital goods and services have undergone exponential expansion everywhere, including India. The digital economy is growing at ten per cent per year, significantly faster than the global economy as a whole.

From a certain perspective, business in digital domain doesn't seem to occur in any physical location but instead takes place in the nebulous world of "cyberspace." Persons carrying business in digital domain could be located anywhere in the world.

These new business models have created new tax challenges. The typical direct tax issues relating to e-commerce are the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity and a taxing jurisdiction, the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes.

To tackle taxation issues in transaction conducted in cyber space, equalization levy has been imposed."

Govt. feels the need to extend the equalisation levy and bring the non-resident e-commerce operator under tax bracket who received considerations from e-commerce supply or services made by it to any residents in India or any income accruing from connection with India. Therefore, Section 165A and 166A have been introduced by Finance Act 2020.

Section 165A and 166A Inserted by Finance Act, 2020

Section 165A - Charge of equalisation levy on e-commerce supply of services.

(1) On and from the 1st day of April, 2020, there shall be charged an equalisation levy at the rate of two per cent. of the amount of consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated by it—

(i) to a person resident in India; or

(ii) to a non-resident in the specified circumstances as referred to in sub-section (3); or

(iii) to a person who buys such goods or services or both using internet protocol address located in India.

(2) The equalisation levy under sub-section (1) shall not be charged—

(i) where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment;

(ii) where the equalisation levy is leviable under section 165; or

(iii) sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated as referred to in sub-section (1) is less than two crore rupees during the previous year.

(3) For the purposes of this section, "specified circumstances" mean—

(i)sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement though internet protocol address located in India; and

(ii)sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India]

Section 166A - Collection and recovery of equalisation levy on e-commerce supply or services.

The equalisation levy referred to in sub-section (1) of section 165A, shall be paid by every e-commerce operator to the credit of the Central Government for the quarter of the financial year ending with the date specified in column (2) of the Table below by the due date specified in the corresponding entry in column (3) of the said Table:

TABLE

S.no Date of quarter ending Due date

1. 30th June 7th July

2. 30th September 7th October

3. 31st December 7th January

4. 31st March 31st March.

Analysis

This levy shall come into force from 1 April, 2020.

The Finance Act, 2020 has introduced a new provision i.e. section 165A in the Finance Act, 2016, to enhance the scope of the Equalisation Levy. Equalisation Levy will now be extended to an e-commerce operator on e-commerce supply and services.

Equalisation Levy shall be charged at the rate of 2% of the amount of consideration received or receivable by an e commerce operator from e commerce supply of goods and services made by it-

• To a person resident in India; or

• To a non-resident in the specified circumstances; or

• To a person who buys such goods/services using internet protocol address located in India.

For the above purpose specified circumstances mean

• Sale of advertisement, which targets a customer, who is resident in India or a customer who access the advertisement though internet protocol address located in India; and

• Sale of data collected from a person who is resident in India or from a person who uses internet protocol address located in India

E-commerce operator – It means a non resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services or both.

Online supply or services

• Online sale of goods owned by the e commerce operator; or

• Online provision of services provided by the e commerce operator; or

• Online sale of goods or provision of services facilitated by the e commerce operator; or

• Any combination of the above activities

When Equalisation Levy is not applicable

• E commerce operator  has a permanent establishment in India and such e commerce supply is effectively conducted with such PE;

• Equalisation levy is levied under the provisions given under section 165 of the Finance Act, 2016; i.e. it means if a services falls both under Section 165 and 165A, compliance of section 165 shall be ensured.

• sales, turnover or gross receipts, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs. 2 crore during the previous year.

Collection & recovery

The equalisation levy shall be paid by every ecommerce operator to the credit of government quarterly within the following due dates:

Date of ending of quarter Due Date

30 June 7 July

30 September 7 October

31 December 7 January

31 March 31 March

Furnishing the statement

Every e commerce operator shall furnish a Statement electronically within a specified time in a Form No. 1 in respect of e-commerce supply of goods or services during the financial year.

Interest

Simple interest is charged at 1% of the outstanding levy for every month or part thereof is delayed.

Income Tax Exemption

Any income arising from any specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 comes into force [or arising from any e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2021] and chargeable to equalisation levy under that Chapter.

Equalisation Levy (Amendment) Rules, 2020

Equalisation Levy (Amendment) Rules, 2020 has been notified by CBDT vide Notification No. 87/2020 dt 28.08.2020 amending/incorporating required rules to give effect to section 165A & 166A.