Foreign-owned e-commerce players including Amazon and Flipkart will have to pay equalisation levy from the next fiscal. The levy, which hitherto was applicable only to digital advertising players such as Google, has now been expanded by way of a sweeping amendment to cover all sorts of digital e-commerce transactions into India, as well as those transaction which use Indian data.
Rakesh Jariwala, Tax Partner – Technology, Media & Entertainment, and Telecom practice, EY said: "This could potentially cover all digital business earning more than ₹2 crore of revenue from India or using Indian data to tax them at two per cent. E-commerce operator will not have the recourse to favourable tax treaty provisions."
"Unlike the earlier levy (on advertising), now the foreign e-commerce operator will be required to make compliances in India which could also raise potential challenges,” he added.
"One can also expect legal challenges on extra-territoriality as the provisions seeks to cover non-resident to non-resident transactions which use India data where OECD is still developing consensus on taxable nexus and allocation of taxing rights," he said.
Indian Finance Bill 2020 was passed in the Parliament on March 23. In a surprising development, the scope of equalisation levy has been extended to cover “e-commerce supply or services” (including facilitation) w.e.f. April 1, 2020.
The applicable tax rate is two per cent (plus a surcharge) on amount of consideration received/ receivable by an e-commerce operator
The levy, first introduced in 2016-17, is often referred to as “Google tax” and was applied on the payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded ₹1 lakh in a year.
The companies using these services are required to withhold the tax amount.
Unlike equalisation levy in case of advertisement and related services, compliance obligation in this case is on the e-commerce operator (non-resident) and is required to deposit equalisation levy so collected on a quarterly basis and also file an annual return.
The provisions related to income on which equalisation levy has been paid being exempt from income tax continue to apply to e-commerce supplies on which equalisation levy has been paid, unless ecommerce operator has a PE in India and services so supplied are effectively connected to such PE, Jariwala said.