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