Equalisation Levy: E-Commerce Operator (Section 165A of Finance Act, 2016)

1. Equalisation levy under section 165A: A brief background:

• Section 165 of the Finance Act, 2016 levied a tax called as equalisation levy on payment made for specified services to non-residents having no PE in India.
• The government decided to widen the tax bracket by subjecting non-resident e-commerce companies to a second branch of equalisation levy under section 165A of the Finance Act, 2016 with effect from 1.4.2020

2. Mechanism of Equalization levy under section 165A:

• Service provider: Non-resident e-commerce operator
• Nature of Service: Online supply of goods/services or both
• Specified Service receiver:
  1. Resident persons (or)
  2. any person using a IP address situated in India*
  3. Non-resident in specific circumstances **

**Specific circumstances mean,

• Sale of advertisement which targets Indian residents or a person who accesses the advertisement through IP address situated in India
• Sale of data collected from a resident indian or from a person who uses IP address situated in India.

* IP address: a unique string of characters that identifies each computer using the Internet Protocol to communicate over a network (can also be defined as a number used to identify a computer or digital device used to access the internet)

3. Who is a non-resident e-commerce operator?

• Non-resident e-commerce operator shall mean a non-resident who owns, operates or manages a digital/electronic facility/platform for online sale of goods or online provision of services or both.
• A person who owns, operates or manages a digital/electronic facility/platform for facilitating transactions between the buyer and seller will also be included under the scope of an e-commerce operator. (i.e. an intermediary e-commerce operator will also be covered)

4. Scope of activities rendered by the e-commerce operator on which equalisation levy under section 165A is applicable?

• Online supply of goods owned by the e-commerce operator
• Online provision of services by the e-commerce operator
• Online facilitation of transactions between a buyer and a seller where consideration is collected by the e-commerce operator.

5. Who should pay the equalisation levy under section 165A?

• Unlike section 165, equalisation levy under section 165A should be paid by the Non-resident e-commerce operator.
• Equalisation levy under section 165 is similar to the TDS mechanism where the service receiver is required to deduct the equalisation levy before making payment to the non-resident service provider, however, section 165A requires the service provider to directly pay the equalisation levy to the government.

6. What is the maximum limit upto which no equalisation levy needs to be paid?

• No equalization levy needs to be paid where the turnover of the e-commerce operator from the online of supply of goods/services to the specified persons does not exceed 2 crores during the financial year.
• Refer FAQ no 2 for specified persons.

7. What is the rate at which equalization levy should be paid by the of e-commerce operator as per Section 165A of the Finance Act, 2016?

• Equalization levy should be paid at the rate of 2% on the consideration received/receivable by the e-commerce operator in respect of online supply of goods/provision of services.

8. Scope of consideration received or receivable by the non-resident e-commerce operator?

Generally, an e-commerce transaction operates in any one of the following manner,

• Situation 1: Sale of own products:
  1. The e-commerce operator will supply goods owned by it or directly provide services to service receivers, and receive consideration against such supply.
  2. Consideration on which equalisation levy should be paid: Total consideration received/receivable by the e-commerce operator
• Situation 2:Transaction facilitation:
  1. The e-commerce operator will act as a mere intermediary between the supplier and the customer. The e-commerce operator will receive the consideration from the customer in full, deduct a percentage as commission for acting as an intermediary and then pay the balance amount to the supplier.
  2. Consideration on which equalisation levy should be paid: Total consideration received/receivable by the e-commerce operator from the customer. (commission amount is not deductible)

9. Non applicability of Equalization levy under section 165A:

• No equalization levy under section 165A needs to be paid,

1. If the e-commerce operator providing or facilitating e-commerce supply of services has a permanent establishment in India and such e-commerce supply of services is effectively connected with such PE.
2. Where the equalization levy is levied under section 165.
3. Where the turnover of the e-commerce operator from the online supply of goods/services to specified receivers does not exceed Rs.2 crores during the financial year.

10. What is the due date for payment of equalization levy collected in respect of e-commerce supply of services?

• The equalization levy should be paid by the non-resident e-commerce operator on a quarterly basis within the following due dates

11. What are the consequences of non-payment of equalization levy within due date?

• Interest: at the rate of 1% per month or part of the month after due date till the date of payment
• Penalty: (over and above the above of equalization levy)
  1. For Non-deduction: Penalty equal to amount of equalization levy
  2. For Non-payment: Penalty equal to Rs. 1000/day (maximum upto equalization levy not paid)

12. What is the due date to furnish the statement of equalization levy?

• The assessee shall furnish an Equalization levy statement in Form No.1 on or before 30^th June immediately following the Financial Year of deduction.
• The Form should be signed and verified electronically under digital signature or electronic verification code.

13. Who should file the statement of equalization levy?

• The statement of equalisation levy for the purpose of section 165A should be submitted by the non-resident e-commerce operator.

14. Consequences of not filing the statement of equalization levy

• Penalty: 100/day till the default continues.

15. Section 10(50) of the Income Tax Act, 1961 and its relevance here

• As per section 10(50) of the Income tax act, income arising to a non-resident e-commerce operator on which equalisation levy under section 165A is levied shall be exempt for the purpose of calculating taxable income for the purpose of paying income tax.
• Section 10(50) is inserted for the purpose of avoiding double taxation of Income.

16. Payments taxable as royalty or technical fees and its relevance here

• As per section 163 of the Finance Act, 2016, any consideration taxed as “royalty” or “FTS” under the Income tax act, 1961 or under the DTAA shall not be subject to equalisation levy.

17. PQR & Co., a non-resident entity based in Malaysia makes a turnover of Rs.25 crores through e-commerce supply of goods to Indian Residents by virtue of its online platform during the financial year. What is the amount of equalization levy payable by on the above transaction?

• In the above case, equalization levy shall be applicable on the income earned by the foreign e-commerce operator (PQR & Co.) in respect of the online supply of goods to Indian residents.
• PQR & Co shall pay Rs.50 lakhs (2% on Rs.25 crores) as equalization levy to the central government within the prescribed due dates.