The new law provides for an equalisation levy of 6% on the amount of consideration received, or receivable on specified services carried on by a non-resident not having a permanent establishment in India.

1. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
‘VENKATAGIRI’
Flat No.8/3 & 8/4, Ground Floor,
No.8 (Old No.9), Sivaprakasam Street,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com
www.vaithilegal.com

2.  The growth of e-commerce and digital economy has created
MNCs who operate from different jurisdictions and are not
discharging tax on income generated in a country as they do
not have a permanent establishment and advantages are
taken through multiple treaties.
 Article 7 dealing with business profits requires a PE.
 What constitutes a PE in digital economy has been a matter
of debate.
 BEPS(Base Erosion and Profit Shifting) are guidelines issued
by the OECD to put a check on tax evasion on digital
transactions and to ensure that income earned anywhere in
the world, must be taxed once.

3.  The new law provides for an equalisation levy of 6%
on the amount of consideration received, or
receivable on specified services carried on by a non-
resident not having a permanent establishment in
India.
 The levy is effective from 01.06.2016.

4.  Under Section 165 of the Finance Act, 2016, an
equalisation levy of 6% shall be charged on the
amount of consideration for any specified service,
received or receivable by a person, being a non
resident from-
 A person residing in India and carrying on business or
profession.
 A non-resident having permanent establishment in India.

5.  Specified services means:-
1. Online advertisement;
2. Any provision for digital advertising space or any
other facility or service for the purpose of online
advertisement and includes any other service as
may be notified by the Central Government on this
behalf.

6.  Where the non-resident providing the specified service has a
permanent establishment in India which is effectively
connected with the specified service.
 If, the aggregate amount of consideration for specified
services received or receivable by a non-resident from a
resident in India and carrying on business or profession or
from a non-resident having a permanent establishment in
India, does not exceed one lakh rupees in any previous
year.
 Where the payment is not for the purposes of carrying out
business or profession.

7.  The person liable to deduct equalization levy from the
amount paid or payable to the non-resident in respect of the
specified service at the rate specified in Section 165 where
the aggregate consideration for specified service in a
previous year exceeds Rs.1 lakh.
 The amount deducted during any calendar month shall be
paid to the credit of the Central Government by the 7th day of
the month immediately following the said calendar month.
 Payment shall be by way of remittance into the RBI, or in any
branch of the SBI, or any authorised Bank accompanied by
an equalisation levy challan.

8.  Every assesse shall within the prescribed time, prepare and
deliver, or cause to be delivered to any authority authorised
by the Board in this behalf, a statement as per the particulars
prescribed, in respect of all specified services during such
financial year. ([Section 167(1)]
 An assessee who has not furnished the statement within the
time prescribed, or having furnished it notices any omission
or wrong, may furnish a revised statement at any time
before the expiry of 2 years from the end of the financial year
in which the specified service was provided.

9.  The statement of specified services required under sub-
section (1) of s.167 may be furnished in the manner namely :-
(i) Electronically under digital signature; or
(ii) Electronically through electronic verification code.
 If the assessee fails to furnish the statement under (1) within
the time specified, the Assessing Officer may serve a notice
upon such assessee requiring him to furnish the statement in
the prescribed form, verified in the prescribed manner and
setting forth such particulars, within such time, as may be be
prescribed.

10.  The statement shall be processed under Section 168 and the
equalisation levy shall be computed after making adjustment
for any arithmetical errors.
 Interest if applicable shall be computed.
 Amount payable or amount of refund shall be determined
after adjusting amounts paid.
 Intimation shall be prepared and generated determining the
amount payable or amount of refund due and the refund due
shall be granted.
 No intimation after expiry of one year from the end of the
financial year in which the statement is furnished.
 Provision for rectification of mistake.

11.  Under Section 170, every assessee who fails to credit
the equalisation levy or any part thereof as required
under S.166 shall pay simple interest at 1% of such
levy for every month or part of a month by which
such crediting of the tax is delayed.

12.  If an assessee fails to furnish the statement within
the guidelines under sub-section(1) or sub-section(3)
of S.167, he shall be liable to pay a penalty of one
hundred rupees for each day during which the
failure continues.

13.  Any assessee who fails to deduct the levy in addition to paying
the levy, or interest, if any, in accordance with Section 170 shall
also pay a penalty equal to the amount of equalisation levy that
he failed to deduct.
 Any assessee having deducted the levy, fails to pay such levy to
the Government shall be liable in addition to the levy / interest a
penalty of Rs.1,000/- for every day during which the failure
continues. However, this penalty shall not exceed the amount of
equalisation levy that he failed to pay.
 Where an assessee fails to furnish the statement, he shall be
liable to pay penalty of Rs.100/- for each day during which the
failure continues.
 Section 173 provides that notwithstanding Section 171 or 172, no
penalty shall be imposable for any failure if the assessee proves to
the satisfaction of the assessing officer that there was a
reasonable cause for the said failure.

14.  A person aggrieved against an order imposing penalty may
appeal to the CIT(A) within a period of 30 days from the date
of receipt of the order and the provisions of Section 249 to
Section 251 of the IncomeTax Act shall apply. – Section 174.
 Second appeal toTribunal.
 Commissioner can also direct an assessing officer to appeal
to theTribunal against the order of the CIT(A).
 Section 253 to 255 of the IT Act shall apply.

15.  If a person makes a false statement in any
verification under this chapter, or delivers an
account or a statement which is false, and which he
knows or believes to be false, or does not believe to
be true, he shall be punishable with imprisonment
for a term which may extend to three years and with
fine. (S.176)
 Under S.177, no prosecution shall be instituted
against any person for any offence under S.176,
except with the previous sanction of the Chief
Commissioner.

16.  The provisions of sections 120, 131, 133A, 138, 156, Chapter
XV, 220-227, 229, 232, 260A, 261, 262, 265-269, 278B, 280A,
280B, 280C, 280D, 282 and 288-293 of the Income-tax Act
shall so far as may be, apply in relation to equalisation levy,
as they apply in relation to income-tax.
 Section 10(50) of the Income Tax Act provides for an
exemption in respect of any income arising from any specified
service which is chargeable to equalisation levy.

17.  Objective of the levy is to provide neutrality so that a company in India is
not at a disadvantage with a company outside India but carrying on
business in India digitally.
 Objective will be defeated when the levy is passed on to the advertiser by
the platform directly or indirectly which will increase cost.
 EL is not a levy under the Income Tax Act and is a distinct and separate
levy under the FinanceAct, 2016.
 This clearly is a structured first move to tax digital commerce and seeks
to surpass the concept of PE; characterization issues as well as DTAA.
 It is likely that the provisions would also be tested in Courts since the
provisions adopt the language which is identical to the language adopted
in Section 66B of the FinanceAct, 1994 which imposes service tax.

18. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
‘VENKATAGIRI’
Flat No.8/3 & 8/4, Ground Floor,
No.8 (Old No.9), Sivaprakasam Street,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com
www.vaithilegal.com