A new chapter “Equalisation Levy”
is introduced by Finance Act 2016, in income tax act, 1961. By introduction of
this levy many non-taxed transactions of non resident companies will come under
its radar. This tax is also called Google Tax, since companies like Google
& Facebook are mostly likely to effected by this levy. The concept of this
levy is similar to TDS.
It is a tax deducted from any payment
made to non residents for any specified transactions. It is
applicable from 1st June 2016 @6%.
For example, M/s ABC Ltd. receives
specified services of Rs. 10 lakh from a non resident person for their
business. M/s ABC Ltd. will have to deduct Equalisation levy @6% i.e Rs.
60,000/- from the payment and give only Rs. 9.40 Lacs to the Non
Resident.
To whom it is applicable?
·
a person resident in India and carrying on business or profession.
·
a non resident having permanent establishment in India.
When it is not applicable?
·
When the non resident who is providing specified transactions have a
permanent establishment in India and the specified transaction is effectively
connected with the permanent establishment.
·
When the aggregate amount of consideration for specified transactions
does not exceeds Rs. 1 Lakh.
·
When the payment for specified transactions is not for carrying out
business or profession in India.
What are the specified services for Equalisation levy?
Specified services includes the following services:
·
Online Advertisement
·
Any provision of digital advertising space or any service for the
purpose of online advertisement.
The central Government may add more services under specified services.
Why Equalisation Levy introduced ?
But why this new concept of
Equalisation levy is introduced? Let us understand it.
As per income tax, a non
resident’s Indian income is always taxable. But there is an exception to
this rule.
If a non resident does not have
permanent establishment in India, then any income accrues in India is not taxable
at all.
On the above principle, it is
provided that there is no need to deduct TDS for such non residents.
For example M/s XYZ Pvt. Ltd., an
Indian company get the work done from ABC Ltd., a Chinese company. The ABC Ltd.
does not have any branch in India, which means it has no business connection in
India.
Hence any payment made by XYZ Ltd. to
ABC Pvt. Ltd. will not be liable for TDS deduction since the such income of ABC
Ltd. is not taxable in India. It may get taxable in China.
But there are many international
transactions which do not get taxed at all, not a single time.
This is possible due to the fact that
in many countries of the word the tax rate are Zero. These countries are called
Tax heaven.
Many MNC’s open new companies in
these countries to save tax.
The Organization for Economic
Cooperation and Development (OECD), India is also member of it, has decided
that a mechanism should be framed so that no single international transaction
should remain non-taxed.
For this reason, India has also
adopted Base Erosion and Profit Shifting (BEPS) project under Action Plan 1
recommended by OECD.
Read here the Base Erosion and Profit
Shifting (BEPS) by Budget 2016.
For this reason concept of
equalisation levy is introduced so that no transaction remains non-taxed.
What is charging section for
Equalisation Levy?
Equalisation levy is part of many
other tools, that India has introduced to make international transaction
taxable.
A new chapter “Chapter VIII” is
introduced in Income Tax Act, 1961 to provide the provisions of Equalisation
levy.
Section 165 is the Charging section
for equailsation levy.
When to deduct Equalization levy?
It is deducted on date of payment or
credit, whichever is earlier.
What is the Due date of payment
of equalization levy?
It is paid on or before 7th of
following month in which it is deducted.
For example if it is deducted in
August, then it is paid on or before 7th of September.
What is Form and due date of Return?
A return shall be filed after the end
of each financial year in Form No. 1 and on or before 30th June
immediately following that financial year.
The return can be furnished in the
following manner:
·
Electronically under digital signature
·
Electronically through electronic verification code
Can we revise the return?
The return so filed may be revised
before end of two years from the end of the financial year in which the
specified service was provided.
What it the interest for late payment
of Equalisation levy?
Section 170 provides for
Interest on late payment of equalization levy.
Interest @1% p.m. shall be paid for
every month or part of month by which such levy is delayed.
The central government will notify
for the date of applicability of Equalisation levy.
What is the penalty for failure to
deduct or pay equalisation levy?
Section 171 deals with penalty for
failure to deduct or pay equalisation levy.
There are two situations:
·
If fails to deduct and pay:
In addition to interest under section
170, he shall pay penalty equal to amount of equalisation levy.
·
If deduct but fails to pay:
In addition to interest under section
170, he shall pay penalty of Rs. 1000 for every day during which failure
continues, however the amount of penalty can not exceeds the equalisation levy.
What is penalty for failure to file
the return?
Section 172 deals with penalty for
failure to file Return.
In such case penalty of Rs. 100 per
day will be levied during the period which failure continues.
Who is empowered to make rules for
equalisation levy?
Under Section 179 Central Government is empowered to make rules for
carrying out the provisions of this chapter.
Central Government has notified Equalisation Levy Rule
2016 by notification No 38/2016
