India has been one of the fore-runners in adopting many BEPS action plans and the digital taxation was no exception. In year 2016, India introduced 6% equalisation levy ( let us consider this as version 1.0) on digital specified services received by a non-resident not having a Permanent Establishment (PE) in India.
In year 2020, India has introduced a version 2.0 of the equalisation levy i.e. Digital Taxation, which extends the scope of such levy to non-resident e-commerce operators providing an e-commerce supply or a service [companies that are not covered by the Equalisation levy 1.0 and whose turnover is more than INR 20 million (USD 260,000)].
A further amendment to this digital tax was brought in the year 2021 with Union Budget 2021 (with retrospective effect) where the applicability of levy and the definition of e-commerce supply have been further clarified/ expanded, giving it an avatar of Equalisation levy 2.1.
The features of such an Equalisation levy 2.1 are as follows:
•To be charged at 2% w.e.f 1 April 2020;
•On the consideration received/ receivable by a non-resident e-commerce operator;
•And the consideration is not taxable as Royalty or Fees for Technical Services (FTS)
•Where e-commerce supply is provided to (a) person resident in India (b) a non-resident that undertakes transaction that are specified ( i.e. sale of advertisement targeting an Indian customer who accesses Internet Protocol (IP) located in India ‘OR’ sale of data collected from a person who is resident in India or who is using an Indian IP) (c) person who buys goods and services using an Indian IP.
e-commerce operator :means a non-resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of service or both;
e-commerce supply or service :
online sale of goods, online provision of services provided, online sale of goods or service facilitated by e- commerce operator.
For the purposes of defining e-commerce supply or service, online sale of goods’ and ‘online provision of services’ shall include one or more of the following activities taking place online:
• Acceptance of offer for sale;
• Placing the purchase order;
• Acceptance of the Purchase order;
• Payment of consideration; or
• Supply of goods or provision of services, partly or wholly
It is important to note that such a levy is a unilateral measure and may not be included or envisaged in the tax treaties with India, thereby not being eligible for a foreign Tax Credit (FTC) in the country of residence.
Step 1: If you are a non-resident doing business with Indian business houses or customers, get yourself analysed/ tested for Equalisation Levy 2.1.
Step 2: Check if the payments coming to you are getting tax withheld in India and whether you have a valid Permanent Account Number.
Step 3: Take a position on Equalisation Levy 2.1 and accordingly undertake compliance and payment of Equalisation levy.