How transactions are chargeable to tax when they took place through any E- commerce website.
For example: – Transactions through Flipkart, Amazon, etc .
Facebook is providing various services in India through Digital platform i .e. Facebook ads, paid pages ,etc. So this transactions are not chargeable to tax in India as there Permanent establishment is not engaged in India.
But on the other hand people who are using this services are taking deductions of this expenses in the Income tax act. So the government is not getting any revenue from the companies and they are given deductions on the expenses.
So to avoid this situation in the year 2016 Finance minister Mr Arun jaitely bring the concept of Equilisation Levy.
We will discuss the same concept in detail in the following paragraphs.
What will you get?
1. Equilisation levy :-
It means tax leviable on consideration received or receivable for any specified service.
Meaning of Specified service:-
- Online advertisement.
- Any provision for digital advertising space or any other facility or service for the purpose of online advertisement.
- Any other service as may be notified by the central government.
Charge of Equilisation levy :-
- It is been levied at the rate of 6% on the amount of consideration for specified service received or receivable by a person being a non – resident from,
- A person resident of India and he carries a business or profession or,
- Non – resident person having a permanent establishment in India.
- Equilisation levy is not chargeable when,
- Non – resident having a permanent establishment in India and such service are being provided relating to such establishment.
- Aggregate amount of such transaction is not exceeding Rs. 100000 in the previous financial year.
- Where the payment has been made by an Indian resident not for the purpose of his business or profession.
Furnishing of statement (section 167) : –
The statement of an equilisation levy of all the specified services is to be electronically furnished in Form No 1. The statement is to be submitted till 30th June of the following financial year.
Time limit for filing a revised statement : –
Revised statement can be filled before the expiry of the 2 years from the date of providing the specified service.
Time limit to file a statement in case a notice has been issued by the assessing officer : –
An assessing officer may serve a notice to an assessee with in such time , in such manner and in such form as may be prescribed. Statement has to be furnished with in 30 days of receiving the notice.
Manner processing the statement (section 168) : –
- An equilisation levy has to be computed after making an adjustment of any arithmetical error.
- Interest has to be deducted on the basis of any sum that is to be deducted.
- Sum payable by or an amount refund is to be adjusted after adjustment of interest.
- An intimation is to be prepared or generated and sent to an assessee specifying the sum determined to be payable.
- Amont refund due to an assesse is to be granted as refund to an assesssee.
No such intimation is to be sent after an expiry of a period of 1 year.
Prescribed form for notice of service of demand :-
Where any tax, interest , fee is to be payable such amount of tax , interst , fee is to be payable in Form No.2.
Rectification of mistake (section 169) : –
Time limit for amending an intimation :-
Intimation is to be amended within 1 year from the end of an financial year in which it has been generated (issued) .
Safeguard to be taken by an assessing officer before amending an intimation : –
Where tax liability of an assesse is going to be increased or his refund is going to be decreased that should be done by an assessing officer when he has given a notice regarding the same to an assessing officer and also give him a reasonable opportunity of being heard.
Interest on delayed payment of equilisation levy : –
An assessee who does not pay tax on the 7th of the following month than he needs to pay tax at the rate of 1% per month or part of the month.
Penalty for failure to deduct or pay equilisation levy :-
|Nature of payment||Penalty|
|1.||Failure to deduct equilisation levy.||Penalty equal to equilisation levy.|
|2.||Failure to pay equilisation levy.||Rs. 1000 per day but the amount does not exceeds an equilisation levy.|
Penalty for failure to furnish statement :-
- Rs.100 for each day during which the default continues.
Consequential provisions in the income tax act, 1961:-
- Section (10)(50) : –
In order to avoid double taxation it exempts any income arising from providing any service on or after the date on which the provisions of the chapter VIII , 2016 comes into force and chargeable to equilisation levy under that chapter.
- Section 40 (a)(ib) : –
If any consideration is paid or payable to a non – resident for a specified service on which equilisation levy is deductible and such levy is not deducted or after deduction has not been paid than such expenses incurred by the assessee towards the consideration for specified service is not allowed as deduction.
However in any subsequent period if equilisation levy has been paid or deducted such sums shall be allowed as deduction in that subsequent year. But such equilisation levy is to be paid before filing the return under section 139.
Punishment for false statement :-
If a person delivers a false statement than he wiil be punishable with fine and an imprisonment of 3 years. This offence will be a non – cognizable offence.
2. Permanent establishment in E-commerce transactions :-
Whether this situations constitutes a permanent establishment?
1. Existence of a website in a host country :-
Web- site consists of data and programs in digitsed form which is stored on the server over the internet service provider. where as permanent establishment means a fixed place of business. So a website in a host country does not constitutes a permanent establishment.
2. Existence of a server in a host country :-
Internet service provider does not gives the right of control of servers to a website owners. Server location is not at the disposable of such enterprise.
Therefore server’s location can not be considered as a place of business and does not constitutes a permanent establishment.
3. Server functioning as agent :-
Servers are just not only for providing an information but also for purchasing the product by clicking on that product. Such a server has a power to contract on behalf of foreign enterprise and may ne considered as permanent establishment.
For more information on Equilisation Levy you can visit the following website given below,
You can also visit my other Blogs at,
Microsoft company has a permanent establishment in India. It has providing a service to sachin Tendulkar relating to windows program which is useful in sachin’s business. So here it is the sachin’s duty to pay to Microsoft after deducting an equilisation levy.
If sachin did not deduct the levy than he will be leviable to penalty.
By continuing an above example if Microsoft is having a permanent establishment in India and it has provided his service to its permanent establishment for free than no need to deduct an equilisation levy.
But If the service has been chargeable to tax, than its Permanent establishment of India needs to deducts an a levy.
So for the protection of the government revenue , government has decided to introduce a new concept like Equilisation levy. So because of this the companies which are not chargeable to tax in India are starting taxing in India.
You can also visit a video for more clarification,
A -1 Every person who is a resident of India and using services of such Non- resident or permanent establishment of a non – resident in India shall pay amount to such no – resident after deducting the equilisation levy.
A-2 Equilisation levy is to be charged at a rate of 6%. Any amount of levy should be rounded of to nearest of Rs.10
A-3 Every transaction exceeding in value of Rs. 100000 are only chargeable to Equilisation levy.
A-4 Equilisation levy so deducted during any calendar month should be paid to the government by the 7th of the month immediately following the calendar month.
A-5 Penalty needs to be paid by the assessee if he does not.