The Digital sector has grown immensely over the last couple of years. Most of the companies benefitting from this growth are the popular advertising giants including Facebook and Google. These companies are located outside India and are making quite a profit without having to pay taxes.Since these companies do not have any main establishment in the country, they can escape from paying income tax in India. But the Government has decided to bring a balance regarding this matter by introducing a new chapter in the Indian Income Tax Act. A new chapter called “Equalisation Levy” was incorporated in the finance bill when the Union Budget 2016-2017 was announced.
Equalisation levy of 6% will be applicable on specific services provided by Non resident companies to Indian residents.Currently, the only service that is being focused on is advertising, digital or online advertising to be precise.
The Equalisation Levy of 6% is applicable only to Non Resident companies. Equalisation Levy is applicable if the aggregate amount of consideration for the Advertisement service is more than Rs.1 lakh a year. Equalisation levy is not applicable if the aggregate amount is below Rs.1 lakh.
Equalisation Levy is very similar to TDS in the manner that the deduction will be made from the total deposit and paid to the Central Government. Equalisation Levy is not applicable to companies registered in Jammu and Kashmir.
Why was it Introduced?
“Equalisation Levy” was very much needed in order to correct certain rules in the Indian Income Tax Act. A NRI’s income is taxable as per Indian Income Tax rules but any company that does not have any permanent establishment in India will not be taxed. As a result, many of these companies manage to make a huge profit through the digital advertising sector without paying any taxes. In order to ensure that every taxation is taxed, Equalisation Levy was introduced.
When will Equalisation Levy be deducted?
Equalisation Levy is deducted on the date of payment or on date of credit, depending on whichever is earlier. But by rule, Equalisation Levy has to be paid by 7th of the following month after deduction.
Consequences of not paying Equalisation Levy
Given below are the two consequences of not paying Equalisation Levy:
- In case of failure to deduct and pay: Penalty that is equal to the Equalisation Levy amount should be paid in addition to interest under section 170.
- In case of deduction but failure to pay: A penalty of Rs.1000 should be paid for every day till the amount is paid in addition to the interest under section 170.
In case of failure to file the return, a penalty of Rs.100 will be levied per day for the period of failure.