Friday, May 18, 2018

Equalization Levy

This is a digital era and we are surrounded by umpteen digital advertisements popping up every single minute on our mobile phones. Online Service Providers are generating huge revenues from online advertising. However, they do not have permanent establishment in every country in which they are providing services and generating revenues.

Moreover, companies providing such services have permanent establishment in countries which are subject to lower rate of tax and hence, have created a new challenge for the revenue departments of the countries where they do not have any permanent establishment.


The Equalisation Levy was introduced by Government of India through the Union Budget 2016 and is included in the Chapter VIII of the Finance Act, 2016 and came into force w.e.f. 1st June 2016. The Equalisation Levy of 6% is applicable to the consideration received or receivable for specified services provided on or after the commencement of the Chapter.

'Specified Service' means online advertisement and any provision for digital advertising space or any other facility or service for the purpose of online advertisement and any other service as may be notified by the Central Government. As of now, no other services have been notified.

For Example:
Facebook is one of the most popular platform to promote business online. Assuming Facebook does not have any permanent establishment in India, it does not have to pay taxes (Income Tax) in India from the revenue generated by it from the country. In order to end this practice, Government of India introduced the concept of 'Equalisation Levy' through Budget 2016.


The Equalisation Levy is applicable only on the payments received by a non-resident service provider from an Indian Resident or an Indian Permanent Establishment of a non-resident. The levy would not be applicable to non-resident service providers having a Permanent Establishment  in India,  as they are already under the purview of tax as per the existing laws.

Conditions to be satisfied:

1. The Service Provider must be located outside India and does not have any permanent establishment in India.
2. If it is located in India, then Equalization Levy is not applicable as the Service Provider is registered in India and will be paying taxes on its income earned in India..
3. The transaction must be a Business-to-Business transaction.


1. If payment made during the year if less than Rs. 1 Lakh or
2. The organization making the payment is registered in Jammu and Kashmir.


(Section 166 of the Finance Act, 2016 read with Rule 3 and Rule 4)
The amount of consideration of specified services for the purpose of equalisation levy, interests and penalty shall be rounded off to the nearest multiple of ten rupees.


Equalisation Levy shall be deducted at a rate of 6% of the amount of consideration payable to the Service Provider for specified service.

For Example:
If  Flipkart pays Rs. 20,00,000 to Facebook (assuming facebook is not registered in India)  for advertisement, Flipkart is liable to deduct Equalisation Levy @ 6% from such consideration.

Date of Deposition

Equalisation Levy shall be deposited  within 7 days from the end of month in which the amount is deducted. In the same manner TDS is deducted and deposited.

Challan No. - ITNS 285

Interest on Delayed Payment of Equalisation Levy
Section 170

Every assessee,  who fails to credit equalisation levy as required under section 166 to the account of the Central Government within the period specified, shall pay simple interest at the rate of 1% for every month or part of the month by which such crediting of tax or any part thereof is delayed.


(Section 167 of the Finance Act, 2016 read with Rule 5 and Rule 6)
An Annual Return is to be filed with the government alike quarterly TDS returns. The date of filing return if 30th June of the next financial year. The return is to be submitted in Form no. 1. The return should be verified through either Digital Signatures or Electronic Verification Code by the Authorized Signatory.


Penalty for failure to deduct equalisation levy
Section 171

Where an assessee who fails to deduct whole or any part of the equalisation levy as prescribed under the provisions, shall be liable to pay:

Levy in accordance with the provisions along with interest(if any) and penalty equal to the amount of equalisation levy the assessee failed to deduct.

Penalty for failure to pay equalisation levy to the Central Government

Where an assessee who having deducted equalisation levy, fails to pay such levy to the credit of Central Government in accordance with the provisions, shall be liable to pay:

Levy in accordance with the provisions along with interest(if any) and penalty of Rs. 1,000/-  for every day during which failure continues.

Penalty for failure to furnish statement
Section 172

Where an assessee fails to furnish the statement within time specified time period, shall be liable to pay a penalty of Rs. 100/- each day during which the failure continues.

Contributed by:

Harshit Singh
Articled Assistant
Sandeep Ahuja & Co.