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Rationalisation of Equalisation Levy

Aiming taxation of digital and business to business transactions for the income accruing from India to foreign e-commerce operators, Equalisation Levy (EL) was introduced in 2016 in India with conditional levy and on specified services .

Finance Act 2020 then expanded the scope of equalization levy and required levy/charge of at the rate of two percent of the amount of consideration received or receivable by an e-commerce operator from e-commerce supply of goods or services made, provided, or facilitated by it to persons in India.

The government has come up with a clarification on the levy of equalization levy in budget 2021. Finance Bill 2021 brought certain amendments to equalisation levy which clarified that equalization levy shall not be applicable where:

  •       Consideration is for royalty; or
  •       Consideration is service for fees for technical; and
  •       Such consideration is taxable in India as per Income Tax Act or DTAA

Further, it was clarified that equalization levy shall be applicable on the sale of goods or services by a non-resident whether he owns such goods or services or not.

Apart from the above, the meaning of online sale of goods or services is also widened enough to include online acceptance of offer for sale, placing of the purchase order, acceptance of the purchase order, payment of consideration, the supply of goods or provision of services, partly or wholly.

Further, earlier, a mismatch existed in the law which created confusion in the minds of the taxpayer that for the financial year 2020-21, on an e-commerce transaction, equalization levy, as well as income tax both, shall be levied. Amendment has been brought to exempt income from tax under Income Tax Act, 1961 on transactions where equalization levy is applicable. This is a clarificatory amendment is applicable retrospectively w.e.f. AY 2021-22.