The Central government of India recently declared that it will not be extending the deadline for the payment of equalisation levy by non-resident e-commerce platforms. This announcement comes despite the fact that a significant number of these companies are yet to deposit the first installment of this tax. The equalisation levy was introduced with an aim to tax foreign firms that have a sizeable local client base in India but avoid the local tax system by billing them through off-shore units.
This news has emerged amidst the United States Trade Representative’s (USTR) investigations into the taxes adopted or being considered by ten countries, including India, on the revenue of American digital service companies such as Netflix, Airbnb and others.
Background of the Equalisation Levy
Effective since 2016, the equalisation levy used to impose a 6% tax on payments that exceeded Rs 1 lakh per annum to any non-resident service provider for online ads. Today, its application has been extended to include e-commerce firms that generate revenue from Indian customers without having a physical presence in the country.
With amendments made to the Finance Act of 2020, the scope of the equalisation levy was further broadened to cover non-resident e-commerce operators participating in the supply of services. These services included the online sale of goods as well as service provisions, with the tax rate set at 2% effective from April 1, 2020. This tax applies to e-commerce transactions on platforms like Amazon.com and Google, especially where advertising revenue is generated overseas targeting customers in India.
Changes to Challan ITNS 285
The income tax department of India modified Challan ITNS 285, related to the equalisation levy payment, to facilitate the first installment by non-resident e-commerce operators. The challan now requires the submission of mandatory Permanent Account Number (PAN) and provides an ‘Outside India’ option for address submission.
Penalties for Non-Payment
Non-payment of the equalisation levy can lead to penalties equivalent to the amount of the equalisation levy itself, along with applicable interest. Delayed payments would draw an interest of 1% per month or part thereof.
Looking Ahead
India is rapidly advancing towards becoming a digital giant. However, to ensure that this growth is unhindered, appropriate negotiations need to be carried out and obstacles in the implementation of regulations like the equalisation levy must be addressed. Furthermore, there is a pressing need for an international consensus on the taxation of a digital economy.
Last Modified: February 8, 2024