Equalisation Levy (EL) in India

Published on September 08, 2021

This tax article was prepared by Ashok Maheshwary & Associates LLP 

Brief Background about Equalisation Levy (EL) in India

Equalisation Levy (EL) was introduced in India in 2016, in accordance with Base Erosion and Profit Shifting Action Plan I formulated by OECD on ‘Taxation of Digital Economy’. This version of levy had the intention of taxing online advertisement income earned by foreign companies. Its scope was further extended in 2020 wherein it seeks to tax the digital transactions i.e., the income accruing to foreign e-commerce companies
from India.

What do you mean by Equalisation Levy?

Equalisation Levy is one of the forms of tax on online businesses primarily in India. There are two types of EL in India one which levies at 6% rate (EL 1) and another popularly known as EL 2.0 (EL 2) which has a 2% rate. EL 1 is withheld at the time of payment by the service recipient. The following conditions are to be met to be liable to EL 1:

• The payment should be made to a non-resident service provider.
• The annual payment made to one service provider exceeds INR 1,00,000 in one financial year.

The EL 1 is levied on gross receipts earned by non-residents (having no physical presence in India) from India by providing online advertisement services, digital advertising space or any other facility or service for the purpose of online advertisements. Further, the Equalisation Levy is outside the ambit of income tax as it was introduced through Finance Act, 2016, and is therefore not covered by double taxation avoidance agreements (DTAAs). Consequently, non-residents subjected to Equalisation Levy cannot claim relief under DTAAs and will not be entitled to credit for Equalisation Levy paid in India in their country of residence.

What is the charge of Equalisation Levy?

The charge of EL1 shall be at the rate of 6% of the amount of consideration for any specified service received or receivable by a person, being a non-resident from:

• a person resident in India and carrying on business or profession; or
• a non-resident having a permanent establishment in India

What is the applicability of Equalisation Levy 2.0 on e-commerce operators?

From the 1st of April 2020, equalisation levy (EL 2) was charged at 2% of the amount of consideration received/receivable by an e-commerce operator from e-commerce supply or services made, provided or facilitated by it:

• to a person resident in India
• to a non-resident in the specified circumstances*
• to a person who buys such goods, services or both using internet protocol address located in India

*Specified circumstances as mentioned in the 2nd point means:
• sale of advertisement, which targets a customer, who is a resident in India or a customer who accesses the advertisement though internet protocol address    located in India; and
• sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India.

An E-Commerce Operator is a non-resident who owns, operates or manages, a digital or electronic facility or platform for online sale of goods or online provision of services or both. E-Commerce Supply or Services is the Online sale of goods owned by the e-commerce operator, Online provision of services provided by the e-commerce operator, Online sale of goods or provision of services or both facilitated by the e-commerce operator or any combination.

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