The clarification in the Finance Bill, 2021 on the equalisation levy is to define its applicability and remove the concerns of market players, the Income Tax Department has said.

This is expected to bring more players within the ambit of this levy and the new taxpayers will be required to pay dues for the last two quarters, an official said, adding that the Central Board of Direct Taxes (CBDT) is, however, expected to expected to waive late fee.

The Finance Bill proposes amendments to the Finance Act, 2016. The amendments prescribe inclusion of the proviso that stipulates that consideration received or receivable for specified services and for e-commerce supply or services shall not include the amount that are taxable as royalty or fees for technical services in India under the Income-tax Act.

On e-comm firms

Last year, the government had expanded the ambit of the levy by including e-commerce companies. The applicable tax rate is two per cent (plus a surcharge) on the amount of consideration received/receivable by non-resident e-commerce operator having a turnover of ₹2 crore or more.

A senior Income Tax Department official told BusinessLine that a section of non-resident e-commerce companies, which are receiving royalty or Fee for Technical Services (FTS), are required to pay the tax at the rate of 10 per cent. But they switched to this levy as the tax rate is just 2 per cent. Now, with the proposed changes, they will be required to pay income tax, as defined under the treaty which could be 10 per cent.

Another amendment proposes an explanation to be inserted in the law. This explanation says ‘online sale of goods’ and ‘online provision of services’ will include one or more of the online activities like acceptance of offer for sale; or placing of purchase order; or acceptance of the purchase order; or payment of consideration; or supply of goods or provision of services, partly or wholly.

The third amendment proposes changes in specified circumstances. This will mean consideration received or receivable from e-commerce supply or services including that for sale of goods irrespective of whether the e-commerce operator owns the goods. Also, it includes money received for provision of services irrespective of whether the service is provided or facilitated by the e-commerce operator. The official said that the equalisation levy will not be levied on commission but on the entire transaction value.

Double-edged sword

Sandeep Jhunjhunwala , Partner at Nangia Andersen LLP, feels that the double-edged sword of royalty and FTS tax of 10 per cent and equalisation levy of 2 per cent on specified services has been blunted. The clarification on inclusion would brand the transaction as an e-commerce supply or service, remove the uncertainty on the sphere of online sales and online provision of services.

The gross consideration received by both marketplace and inventory-based e-commerce operators would be exigible for charge of equalisation levy, which is bound to lead to instances of higher levy for marketplace e-commerce businesses. These clarifications, with retrospective effects, clear the deck on some unsettled positions for non-resident e-commerce business houses, having Indian market connect.