Tax Reforms

What is Equalization Levy?

Note4Students

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:

a) E-commerce

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:

  1. Online advertisement;
  2. Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;

Applicability

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.
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