During COVID-19 we are offering our tool for free. Get Started for Free

What is Payment of Equalisation levy

What is Payment of Equalisation Levy

With the increase in technology and digital presence. There comes enough demand for the Supply and Procurement of Digital Services. Consequently, this has given rise to various new business models, where there is a heavy dependency on telecommunication networks. There also comes a tax Challenge along with it. In order to have a fair share of the tax rules, the government introduced vide Budget 2016, the equalization levy to give effect to one of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan.

Where Equalisation Levy is applied

It is a direct tax, which is withheld at the time of payment by the service recipient.

The two conditions to be met to be liable to equalization levy:

  • The payment should be made to a non-resident service provider;
  • The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

Services Covered Under Equalisation Levy

Currently, not all services are covered under the ambit of the equalization Levy. The following services covered:

  • Online advertisement;
  • Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;

As and when any other services are notified will be included with the aforesaid services.

Rate of Tax Under Equalisation Levy

Currently, the applicable rate of tax is 6% of the gross consideration to be paid.

Example:

Rohan has advertised on Facebook to expand his business. He has to pay Rs. 2,00,000 in FY 2017-18 to Facebook for the advertising services availed.

Solution:

Facebook will bill Rohan for an amount of Rs. 2,12,765.9

Rohan will deduct TDS at the rate of 6% of Rs. 2,12,765.9 = Rs. 12,765.9 and pay the balance of Rs. 2,00,000 ( Rs. 2,12,765.9 – Rs. 12,765.9) to Facebook.

Due Dates for Compliance

The due date of furnishing the Equalisation Levy Statement (Form-1) is on or before 30th June of the Financial Year ended. This is the annual statement.

From the above example, let us assume Rohan made the payment on 15th February.

He will have to deposit the tax with the authorities by 7th March 2019 and file the statement (i.e. Form -1) on or before 30th June 2019.

Consequences of Delayed Payments

  • In case there is a delay in payment:

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

  • In case there is non-compliance on behalf of the service recipient:

The compliance procedure for the Equalisation Levy is the responsibility of the service recipient.

1. Penalty for failure of payment

  • Equalisation Levy not deducted: Penalty equal to the amount of levy failed to be deducted (along with interest and depositing of the principal levy outstanding).
  • Equalisation Levy deducted but not deposited: Penalty equal to INR 1,000/day subject to the maximum of the levy failed to be deducted (along with interest and depositing of the principal levy outstanding).
  • Disallowance of such expenditure in the hands of the payer (unless the defect is rectified).

2. Penalty for failure of filing statement of compliance

  • INR 100/day for each day the non-compliance continues.

3. Prosecution

  • If a false statement has been filed then the person may be subjected to imprisonment of a term up to 3 years and a fine.

Find your form here: Form 1-Equalisation levy