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Equalisation levy of 6% to come in force from June 1

Equalisation levy of 6% to come in force from June 1

Equalisation levy of 6 percent on services pertaining to cross border digital transactions will come into effect from June 1.

At present, equalisation levy is leviable only on payments relating to online advertisements, said C A Gupta, Partner, Deloitte Haskins and Sells.

The Central Board of Direct Taxes (CBDT) has notified the rules for equalisation levy and said the tax will come into force from June 1.

In order to tap tax on income accruing to foreign e-commerce companies from India, the Finance Act 2016 said a person making payment to a non-resident (who does not have a permanent establishment) exceeding in aggregate Rs 1 lakh in a year will withhold tax at 6 percent of gross amount paid, as equalisation levy.

The levy will only apply to business to business transactions.

As per the BEPS action plan, OECD has recommended to impose a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition of a equalisation levy on consideration for certain digital transactions.

“Considering that all the operational aspects have been addressed, once the provision for equalisation levy is brought in force, the payers would require to be mindful of the compliances with equalisation levy in relation to payment towards online advertisements,” said Gupta.

Last month, Internet and Mobile Association of India (IAMAI) had said that levy on online advertisement revenue of foreign companies would “severely raise the cost of doing business” for Indian tech startups.

The Committee on Taxation of E-commerce set up by the CBDT in its report submitted to the government in February had suggested introduction of equalisation levy between 6-8 percent on amount paid to non-resident by an Indian resident for specified digital services.

The specified services would include online advertising or any services, rights or use of software for online advertising, including advertising on radio and television, designing, hosting or maintenance of websites, digital space for website, e-mails, blogs, facility for online sale of goods or services or collecting online payments.