Equalization levy on Digital Advertising Charges paid outside India with effect from June 1 2016

The advertisement charges for advertising on google, facebook, Linkedin and other digital advertising platform are usually paid out of india in foreign currency, though entire advertising activity happens in india, and escapes any taxation in India.

The Indian Finance Minister Sri Arun Jaitly has introduced the equalization levy with effect from june 1, 2016. The provision for equalization are provided in Chapter VIII of the Finance Act 2016.

Brief summary of Provisions are as follows :

Rate of tax and Services Covered :

 The equalization levy would apply @ 6% on amount paid or payable  for Online advertisement, any provision for digital advertising space or any facility service for the purpose of online advertisement or any other service as may be notified later by government. Levy is applicable on amount paid or payable for above services to non-resident.

The scope of the levy may be expanded to cover a wider range of digital goods and services as time progresses.

Equalization levy is aimed at taxing business-to-business (B2B) e-commerce transactions. Levy is not applicable  where payment is  not for the purposes of carrying out business or profession.

Levy is not applicable if aggregate of payment to a non resident during the financial year does not exceed Rs 1 lakh.

Collection and deposit and filing of return :

The said tax of 6% is required to be deducted from the amount paid or payable to non-resident for specified services.

Tax so deducted is required to deposited on a monthly basis within 7th of following month. Interest at the rate of 1 % per month or part of month is applicable for delayed deposit of taxes.

Annual statement with respect to levy is required to filed with specified period form end financial year in which service are provided. To rectify any mistake or omission in the statement filed revised statement can be filed within 2 years from end of financial year in which service is provided. Statement will be processed and intimation for any demand or refund will be sent with in end of 1 year from the end of financial year in which statement is filed. Any mistake in such intimation can be rectified within one year from the end of financial year in which intimation was issued.

Penalty :

Non deduction of equalization of levy would attract penalty equal to amount of equalization levy in addition to payment of equalization levy and interest on delayed payment.

Where Equalization Levy is deducted but not deposited with government would attract penalty of Rs 1,000 per every day during which such failure continues. This penalty is subject to maximum limit of equal to amount of equalization levy.

Non filing of annual statement would attract penalty of Rs 100 for each day during which the failure continues.

No penalty shall be imposed where assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.

Chapter provides for appeal to Commissioner ( appeals) and to Income Tax Tribunal against order levying penalty.