March 12, 2024 / Others

FAQ ON EQUALISATION LEVY (EQL)

1.What do you understand by EQL?
Equalisation Levy is referred to as EQL (EQUALISATION LEVY). It would be assessed on digital services (mostly Advertising) offered in India by non-resident companies.

2. Why it is charged?
In India, Non-Resident corporations would frequently avoid paying any type of tax. The government instituted EQL @ 6% on all non-resident entities that do not have any permanent establishments in India in order to stop this.

3. Which services are covered by its jurisdiction?
EQL is chargeable to specified services mentioned in the notification. So far only Advertisement has been added to the list of ‘Specified Services’.

4. What exactly are the Specified Services?
Specified Services include online Advertising, any provision for digital advertising space, or any other facility or service for the purpose of online advertising, as well as any other service that the Central Government may notify in this regard.

5. Whom does it apply to?
This Tax will apply to any Non-Resident entity that does not have a permanent establishment in India. EQL is applicable to companies like Google, Yahoo, Facebook, and others who generate significant revenue from India by offering digital advertising services.

6. Do the provisions of the Equalisation levy also apply to me as an individual looking to advertise online for my own needs?
Payments made for personal use are not subject to the Equalisation levy provisions.

7. Which rate applies?
EQL is assessed at a 6% rate on a list of digital services.

8. Is there is any EQL Exemption?
The list is as follows:

If the total cost of services received in the preceding year is equal to or less than Rs.1 lakh, no EQL is assessed.
EQL is only applied to B2B transactions; B2C transactions are not subject to it.
If a company is based in Jammu and Kashmir, EQL does not apply to that entity.

9. I have posted advertisements on Facebook to market my baking business. I must pay Facebook Rs. 40,000 in FY 2019–20 for the advertising services I used. Does the Equalisation levy apply to me?
No, you are not required to deduct the equalisation levy since your annual contributions did not exceed Rs.1,00,000 throughout the financial year.

10. What happens if a company forgets to pay the service provider’s EQL?
The EQL burden will be transferred to the service receiver in the event that an entity (service provider) fails to charge EQL to the service recipient.

11. What is the due date of furnishing of Equalisation levy Statement?
Annual returns must be submitted electronically in Form No.1 on or before June 30, the day after the end of the fiscal year, in accordance with Section 167 of Finance Act 2016, Rules 5 and 6.

12. How has the Finance Act of 2020 expanded the scope of the Equalisation Levy?
Equalisation Levy was chargeable exclusively on the consideration received or receivable by a non-resident from supplying online advertisement services or related services to an Indian resident or person having PE in India, according to Section 165 of the Finance Act, 2016 (“FA, 2016” for short).

By virtue of Finance Act, 2020, a new section 165A has been included in FA, 2016 to broaden the scope of Equalisation Levy by incorporating the consideration received or receivable for E-commerce Supply or Services by an e-commerce operator within its ambit.

E-commerce operators will now be required to pay an Equalisation Levy of 2% (the “New Equalisation Levy”) of the consideration received or receivable.

13. What day does the New Equalisation Levy take effect?
The New Equalisation Levy will go into effect on April 1st, 2020. This means that starting in F.Y. 2020–21, an ecommerce operator who offers e-commerce products or services to a specific group of people will be required to pay the New Equalisation Levy.

14. What does “E-Commerce supply or services” entail in the context of the New Equalisation Levy?
Where an e-commerce operator is engaged in offering e-commerce supplies or services, new Equalisation levy is applicable. The phrase “E-Commerce supply or services” is defined as follows in clause (cb) of Section 164 of the FA, 2016 for this purpose:

online sale of goods owned by the e-commerce operator; or
online provision of services by the e-commerce operator; or
online sale of goods or provision of services or both, facilitated by the e-commerce operator;
combination of any of the aforesaid activities.

15. Does the New Equalisation Levy in India apply to all e-commerce goods or services that the e-commerce operator makes, offers, or facilitates?
No, the New Equalisation Levy will not be applied to all of the e-commerce supplies or services that the e-commerce operator makes, offers, or facilitates. According to Section 165A(1) of the FA, 2016, only the following individuals (referred to as “Specified Persons”) will be subject to the New Equalisation Levy:

when the e-commerce operator provides goods, services, or both to a person residing in India;
Whenever an e-commerce operator provides products, services, or both to a customer who purchases those goods, services, or both using an IP address in India;
When an e-commerce operator provides products, services, or both to a Non Resident person in a specific situation.

16. If the New Equalisation Levy is a cost that the e-commerce operator must bear, or if it is to be paid separately to customers in the invoice the e-commerce operator raises?
An e-commerce operator may be subject to a New Equalisation levy, which is a sort of direct tax assessed on the proceeds from sales of goods or services created, offered, or enabled by the operator. As a result, the fee has been placed directly on the e-commerce operator and must be paid by it alone. However, how an e-commerce operator structures its business activities to deal with this additional tax may vary from instance to case.

For instance, ABC, an online retailer, charges Indian residents Rs. 20 crore in exchange for its services, and as a result, it must pay an equalisation fee of 2% of that sum, or Rs. 40 lac, in order to comply with government regulations. Now, if ABC chooses to increase the consideration to Rs. 10.40 Crores and decides to charge this equalisation levy of Rs. 40 Lac from its consumers, it will be responsible for paying Equalisation levy on this new consideration.

17. When must the New Equalisation Levy be deposited to the Central Government’s credit?
According to Section 166A of the FA, 2016, an online retailer is required to make quarterly deposits of the New Equalisation Levy to the credit of the Central Government by the following deadlines:

S. No.	Date of ending of the Quarter of FY	Due date of Payment
1	30^th June	7^th July
2	30^th September	7^th October
3	31^st December	7^th January
4	31^st March	31^st March

The deposit of the New Equalisation Levy for the 4^th quarter, which must be made within the quarter itself as opposed to the first 3, where the levy must be made by the seventh day of the month after the end of the relevant quarter, appears to present a practical challenge.

18. What happens if the e-commerce operator forgets to deposit or pay the New Equalisation Levy?
In the event that an online merchant is unable to deposit or pay the New Equalisation Levy, they will also be required to pay the following penalties:

Interest on delayed payment of Equalisation levy
Every e-commerce operator that fails to deposit the entire equalisation levy by the due date will be required to pay Simple Interest at the rate of 1% of the levy for each month or portion of a month that this failure persists.

Penalty for failure to pay Equalisation levy
Every e-commerce operator who neglects to deposit the entire or a portion of the equalisation tax to the credit of the Central Government is subject to a fine equal to the amount of the unpaid equalisation levy.

19. What are the repercussions if the Equalisation Levy Statement is not filed?
An e-commerce operator that misses the deadline to submit the Equalisation Levy Statement would be required to pay a fine of Rs.100 for each day that goes by without submitting it.

20. What is the e-commerce operator’s obligation to comply with while providing a statement?
Every e-commerce operator must prepare and provide an Equalisation Levy Statement in the format and manner that will be required to the Assessing Officer and any other authority or agency allowed by the Board. Additionally, the stated statement must be provided by the 30th of June following the end of each F.Y., and it must be filed yearly.

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