Equalisation Levy

In News

  • Recently, the Ministry of Finance stated that the Equalisation levy imposed by India on supply of services by multinational enterprises is a ‘sovereign right’.

What is an Equalisation Levy?

  • It was first introduced by the Finance Act, 2016, at the rate of 6 per cent on payments for digital advertising services received by non-resident companies without a permanent establishment (PE) in India, if these exceeded Rs 1 lakh a year.
  • The Budget 2020-21 has expanded its scope to include consideration received by non-resident e-commerce operators from e-commerce supply or services. 
    • The rate applicable has been set at 2 per cent.
  • It is aimed at taxing business to business transactions.
  • Eligibility: 
    • Companies with a turnover of over Rs. 2 crore, will pay this levy on the consideration received for online sales of goods and services.   
  • Purpose: 
    • The purpose of the levy is to ensure fair competition, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations
  • Applicability of Equalisation Levy:
    • Equalisation Levy 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 equalisation 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 equalisation 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.

Source:IE

 
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