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What is Return of Equalisation Levy

What is the Equalisation levy?

It is aimed at taxing business-to-business transactions. It is introduced in order to tax digital transactions. This is especially for the income accurred in foreign e-commerce companies from India.

Why Equalisation levy was introduced?

Since there is an expansion of Information technology globally, digital services have also expanded all over especially in India. India acts as a hub for most of the e-commerce in foreign countries. The new business evolution has challenged the Taxation area. To avoid the chaos and to bring clarity, 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 does Equalisation Levy apply

Equalisation Levy is a direct tax. It is withheld at the time of payment by the service recipient.

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

  1. The payment should be made to a non-resident service provider;
  2. The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.
  3. Services Covered Under Equalisation Levy

Generally, all the services are not covered under the equalization Levy.

However, here is the list of services that are covered under the Equalisation levy

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

Tax Rates and Slabs

As per the current rule, the rate of tax is 6% of the gross consideration to be paid.

Scenario 

Sid has advertised on Instagram about his business and services. He has used services for 1,00,000 in  Instagram for the particular financial year FY 2018-19

Instagram will bill Sid for an amount of Rs. 1,12,765.9

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 and Delayed Payments

The Equalisation levy statement has to be submitted through Form- 1. The  Due date of furnishing the Equalisation Levy Statement (Form-1) is on or before 30th June of that particular Financial Year. It is an Annual return statement.

In case of delay in payment, There is an interest charged at the rate of 1% on the outstanding levy every month.

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.

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).

Penalty for failure of filing statement of compliance

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

Prosecution

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

Find Your form here: Equalisation levy