In order to tap tax on income accruing to foreign e-commerce companies from India, the Finance Act 2016 said a person making payment to a non-resident (who does not have a permanent establishment) exceeding in aggregate Rs 1 lakh in a year will withhold tax at 6 per cent of gross amount paid, as equalisation levy.
The levy will only apply to business to business transactions.
The salient features of this Equalisation Levy is as under:-
* It is to tax the e-commerce transaction/digital business which is conducted without regard to national boundaries.
* The equalization levy would be 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.
* Specified services means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government.
* No levy if aggregate amount of consideration does not exceed Rs.1 lacs in any previous year.
The Central Board of Direct Taxes has notified 1 June 2016 as the effective date for Equalisation Levy (Chapter VIII of the Finance Act, 2016). Additionally, the Equalisation Levy Rules, 2016 have also been notified and shall be effective from 1 June 2016. The notification (attached) prescribes the following:
Form 1: To be furnished electronically in respect of specified services chargeable to equalisation levy on or before 30 June immediately following that financial year.
Form 2: Notice of demand.
Form 3: Filing of appeal to commissioner of income tax (Appeals).
Form 4: Filing of appeal to Income tax appellate tribunal.
The specified services would include online advertising or any services, rights or use of software for online advertising, including advertising on radio and television, designing, hosting or maintenance of websites, digital space for website, e-mails, blogs, facility for online sale of goods or services or collecting online payments.