What is Equalisation Levy (EL)? 

Equalisation Levy is a direct tax imposed on online transactions made to non-residents or consideration received by a non-resident for specific services. It is often called the "Google Tax" and was introduced in the Budget 2016 under the Finance Act 2016.

It aim taxing business-to-business transactions. Considering this, an Equalisation Levy is a direct tax that is withheld at the time of payment by the service recipient. Additionally, the equalisation levy is not part of the Income Tax Act but is governed by the Finance Act 2016.

Specified Services

The specified services included in the Equalisation Levy are as follows:

• Online advertisement and digital marketing services. It includes social media networks, video streaming sites, sponsored content, pay-per-click (PPC) campaigns, and more.
• Provision of digital advertising space and intermediary services. It includes banner ads, promotional placements, and more.

Applicability of Equalisation Levy (EL)

The applicability of the Equalisation Levy depends on the following circumstances:

• The payment should be made to a non-resident service provider.
• The annual payment made to one service provider is more than INR 1,00,000 in one financial year.

Consequences Where Equalisation Levy is Not Applicable

Consequences where Equalisation Levy is not applicable are as follows:

• Non-resident service providers have a permanent establishment in India. Additionally, the digital services are connected with the permanent establishment.
• From the e-commerce supply or services, the annual turnover of the e-commerce operator during the previous year is less than INR 2 crore.
• The payment for specified services is not more than INR 1,00,000 in a financial year.
• An income chargeable to tax as royalties or fees for technical services is not a part of the equalisation levy.
• To avoid double taxation, a tax exemption is provided under section 10(50) of the Act for any income arising from specified services on which an equalisation levy is imposed.
• The described service is not intended to be used to pursue a work or profession.

Rate of Equalisation Levy Tax

Under the equalisation levy, the tax rate depends on the type of transaction or service.

• 6% Levy: It is imposed on specified digital services like online advertising.
• 2% Levy: It is imposed on e-commerce transactions such as online sales of goods or services.

For instance, if a non-resident e-commerce operator sells goods valuing INR 20,00,000 to Indian residents, an equalisation levy of INR 4,00,000 (2% of INR 20,00,000) would be imposed on the operator.

Due Date for Compliance

The due dates for the equalisation levy tax are as follows:

• For instance, Date of payment: 20th March
• Due date to deposit the tax to the income tax department: 7th April
• Due date to file Equalisation Levy Statement: 30th June of the following financial year.