From UPSC perspective, the following things are important :
Prelims level : Equalization Levy
Mains level : E-commerce and its taxation
The government is not considering extending the deadline for payment of Equalization Levy by non-resident e-commerce players, even though a majority of them are yet to deposit the first instalment of the tax.
Try this MCQ:
Q.The Equalization Levy sometimes seen in news is related to:
b) Air Travel
c) Imports Substitution
d) None of these
What is Equalization Levy?
- Equalization Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.
- It is aimed at taxing business to business transactions.
The following services are currently covered under the EL:
- Online advertisement;
- Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;
Equalization Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to the levy:
- The payment should be made to a non-resident service provider;
- The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.
Why it was introduced in India?
- Over the last decade, IT has gone through an exponential expansion phase in India and globally.
- This has led to an increase in the supply and procurement of digital services.
- Consequently, this has given rise to various new business models, where there is a heavy reliance on digital and telecommunication networks.
- As a result, the new business models have come with a set of new tax challenges in terms of nexus, characterization and valuation of data and user contribution.
- To bring in clarity in this regard, the government introduced in the Budget 2016, the equalization levy.