Equalization Levy And Itís Changing Trend As To Budget 2021
Equalization Levy: Meaning
The income tax law imposes levies based on place of residence of the taxpayers
and /or their source of income, such laws were originally conceptualized with
brick-mortar business in mind. However, the same is being initiated by the
Indian Policy makers to be shifted to levying of the taxes also on the digital
economy. As the digital economy is one of the most flourishing mode of business
and yet are easily evaded via the conventional concepts and as a result
digitally running business frameworks have opportunities to circumvent tax laws
and set operations to minimize tax liability.
Hence, the policy makers introduced the Equalisation levy in 2016 and the same
was part of the Financial Bill, 2020. The Equalisation Levy refers specifically
to the tax imposition of 2% on the digitally provided goods, services by the
non-residents of India and the services/goods are supplied to the IP addresses
routed to the residents/users within India.
Equalization Levy In Comparison To Taxation Levy Of Other Nations
In similarity to the Equalisation levy, a similar Digital Services Taxation
scheme is in practice in UK and other European nations. Those policies have been
elaborately been explained with respect to the general issues of whether the
taxes would be charged upon the gross revenue or on the net profit earned.
However, the Equalisation Levy in India is still silent on such assumptions and
only caps the threshold of the transaction to be Rs.2 crore and the said
threshold is levied across globe carrying out business transactions in India.
Another aspect that has not been clearly laid down neither in the Finance Bill,
2020 or Finance Bill, 2021 and the same is non determinable from the Terms of
the Income Tax Act. The aspect relates to the taxation with unilateral measures
or multilateral transactions. Further, the same if compared to the policies laid
down by OECD (Organization of Economic Co-operation and Development) and in
consonance with the same, the UK DST in order to avoid the confusion with
respect to the unilateral transaction or multilateral transaction tax imposition
has laid down DST on 50% of revenue.
Another important aspect to be considered as the same is not clarified by the
policy makers/Government in the Financial Bill, 2020 and 2021as well. This
refers to the taxation consideration for intermediary platforms that work in
lieu of commission from registered seller or buyer or both. Also, the important
point of consideration is the surety of the IP Address where the services or the
goods are sold are provided at the locations within the territory of India.
However, the major concern for the determination of the same arises due to the
virtual private networks as they play a considerable role in disguising IP
addresses and location of the end user.
Explanation Of Application Of Equalisation Levy As Per The Financial Bill 2021
Despite various remittances of the non-clarity, in the financial Bill, 2021
light has been given on certain gray aspects of the Equalisation levy and itís
The Financial Bill 2021 clears to the fact that the Equalisation levy extends
itís application even to companies that do not own the goods or provide the
services on their platforms and if any part of the transactions is online even
if it just an online payment, it will be taxable as per the Equalisation levy.
However, the royalty and fees for technical services is excluded from the levy
and instead will be taxed a 10 percent only.
The Finance Bill also clearly laid down that for the purpose of defining
ecommerce supply or service, "online sale of goods" and ďonline provision of
servicesĒ shall include one or more of the following online activities, namely:
acceptance of offer for sale; placing of purchase order; acceptance of the
purchase order; payment of consideration; or supply of goods or provision of
services, partly or wholly.
It further lays down that the levy charges apply on the entire Ďconsiderationí
but the term Ďconsiderationí has not been elaborately explained neither in the
Financial Bill nor in the Income tax act but have laid down a threshold of Rs. 2
crore on the transactions which is very moderate and applies equally to all
e-commerce operators across the globe having business in India.
The Financial Bill lays light expressing clarification that the transactions
taxable under income tax are not liable for equalization levy. Further, it is
also proposed to clarify regarding the applicability of equalization levy on
physical/offline supply of goods and services.
Hence, the financial Bill has provided clarity on definition of e-commerce
supply or service saying these will include one or more of online activities,
including acceptance of offer for sale; placing the purchase order; acceptance
of the purchase order; payment of consideration; and supply of goods or
provision of services (partly or wholly).
This amendment will take effect from April 1, 2021 and will accordingly apply to
the assessment year 2021-22 and subsequent assessment years.
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