India has implemented equalisation levy on digital transactions in consonance with the initiative of the Organisation for Economic Co-operation and Development (OECD) to address the base erosion and profit shifting (BEPS). OECD defines BEPS as the tax planning strategies which exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. The Finance Act, 2016 (Act) has introduced equalisation levy of 6% in respect of certain specified services involving payments exceeding INR 100,000 in the online marketing and advertising domain rendered by non-residents who do not have a permanent establishment (PE) in India. This is in the form of a withholding obligation. The Act provides for the application of equalization levy on business-to-business (B2B) transactions between the service provider and a resident who carries on any business or profession in India or a non-resident having a PE in India (being the service recipient). The provisions of equalisation levy are not within the ambit of the Income Tax Act, 1961 but form part of a separate code contained under the Act.
Equalisation Levy Rules, 2016
The CBDT has notified Equalisation Levy Rules, 2016 (Rules) which are effective from 1 June, 2016.
The Rules cover procedures for payment of levy and prescribed forms (for statements, appeals, etc.) and provide as under:
- Payments of equalisation levy
A taxpayer is required to deduct equalisation levy and pay it to the credit of the central government by remitting it into the Reserve Bank of India or any branch of the State Bank of India or any authorised bank accompanied by a challan. For the purpose of the levy, the amount of consideration for specified services and amount of equalisation levy, interest, penalty payable and refund due shall be rounded off to the nearest multiple of ten.
- Statement of Specified Services
The statement of specified services is required to be furnished electronically in the prescribed form on or before 30 June immediately following the relevant year.
Notice of Demand: The tax authorities shall serve upon the taxpayer the notice of demand in the prescribed form where any levy, interest or penalty is payable in consequence of any order passed under the provisions of the Act.
Notice calling for the statement of services: If the taxpayer fails to furnish the statement of services, the tax authorities shall issue a notice to the taxpayer requiring him to furnish the statement within a period of 30 days from the date of receipt of the notice.
Forms have been prescribed for filing appeals to the Commissioner of Income-tax (which shall be filed electronically) and the Income Tax Appellate Tribunal.
Since the provisions and procedures under the Income Tax Act, 1961 (other than the provisions which are specifically made applicable for the purposes of the Act) do not govern the equalisation levy, the Rules have been notified to lay down the procedure and prescribe necessary forms.