All about Equalisation levy….

Under Section 165 of Finance Act, 2016 Equalisation levy is the tax deducted by a resident or a non-
resident having permanent establishment in India for the consideration received by a Non- Resident
on Specified services.

For analysing the definition, we need to understand few terms: -

Purpose Of Introducing this section: -

Many Advertising platforms like Facebook, Instagram, Twitter provide Online Advertising services to
Indian Enterprises and pay no tax for the Income received as they are not having permanent
establishment in India and the Indian businesses claim deduction under Income Tax Act, 1961 for the
Advertisement expenses paid. To avoid this situation Finance Act, 2016 has introduced new section
Equalisation levy under Finance Act, 2016.

Taxability of Non-Resident: -

• Income received or deemed to be received in India in the previous year; or

• Income which accrues or arises or is deemed to accrue or arise in India during previous year.

Specified Services: -

Income received by a Non-Resident on online advertising or provision of digital space for online
advertisement or any other service for purpose of online advertising.

Permanent establishment: -

A permanent establishment is a fixed place of business through which business of the enterprise is
wholly or partly carried on. It includes Branch, Office, Factory, Workshop and Office etc.

Applicability: -

Under section 165 of Finance Act, 2016 Equalisation levy is levied @6% for the consideration
received by a non-resident not having a PE in India from

• From a person who is a resident in India

• From a Non- Resident having a PE in India.

And equalisation levy is applicable if the aggregate consideration received exceeds 1 lakh rupees in
the previous year for the specified services provided.

So, under this section Equalisation levy is not applicable if the aggregate consideration received is up
to 1 lakh in the previous year or if the consideration is received by a Non-Resident having a PE in
India.

Under section 165 of Finance Act, 2016 the person making payment must make sure to deduct tax
@6% of the consideration received before making payment to a Non-Resident.

Other section 165A of Finance Act, 2016 was Introduced to increase the scope of Equalisation Levy.
Under this all Non-Resident Ecommerce operators not having PE in India required to pay an
Equalisation levy of 2% on the Ecommerce supply and services to

• A Person Resident in India

• A Non-Resident in the specific circumstances in Specified circumstances
• A person using Internet protocol (IP address) located in India for undergoing any purchase of
goods or services.

Under this section E commerce operations need to pay tax in case the aggregate
consideration received under the above-mentioned transactions with the mentions persons
exceeds 2 crores during the previous year.

Specified Circumstances include: -

• Sale of Advertisement targeting Indian customer resident in India or access the

advertisement using IP address located in India
• Sale of data collected from a person Resident in India or from a person who use IP address
located in India.

Non- Applicability: -

• When tax is paid under section 165 of Finance Act, 2016.

• When E commerce operator has PE in India, and the specified supply and services are
connected to such PE.
• When the total turnover, Gross Receipts and consideration received from Ecommerce supply
and services is less than 2 crores in the previous year.

Time Limit for Making payment: -

Under section 165 of Finance Act, 2016 it shall be paid to the credit of Central Government on or
before the 7th day of the month immediately following the month in which such levy was deducted.

However, under section 165A of Finance Act, 2016 the payments shall be-

Period Due Date

April 1st-June 30th 7th July
7th
July 1st - September 30th October
October 1st- December31st 7th January
January 1st - March 31st 31st March