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EQUALISATION LEVY

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EQUALISATION LEVY
By: Mr. M. GOVINDARAJAN
March 8, 2016
  • Contents

Chapter VIII of Finance Bill, 2016 (‘Bill’ for short) seeks to insert a new Chapter in the Finance Bill 2016 which deals with equalization levy, collection and recovery of such levy.

Clause 160 of the Bill provides that Chapter VIII applies to all over India except Jammu & Kashmir and will be effective from the date as the Central Government may, by Notification in the Official Gazette, appoint.

Equalization levy

An equalization levy would be intended to serve as a way to a tax a non resident enterprise’s significant economic presence in a country.   In order to provide clarity, certainty and equity to all stakeholders, and to avoid undue burden on small and medium sized businesses, the equalization levy would be applied only in cases where it is determined that a non resident enterprise has a significant economic presence.

The Government in the Budget 2016 – 17, proposed an equalization levy on services pertaining to cross border digital transactions to give effect to the Base Erosion and Profit Shifting (BEPS) project of the OECD.  As per the BEPS action plan, OECD has recommended to impose a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider for imposition of a equalization fee on consideration for certain digital transactions.

Clause 161 (d) defines the term ‘equalization levy’ as the tax leviable on consideration received and receivable for any specified service under the provisions of Chapter VIII.

Specified service

Clause 161 (i) defines the term ‘specified service’ as online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf.

Charge of equalization levy

Clause 162 (i) provides that there shall be charged an equalization levy @ 6% of the amount of consideration of any specified service received or receivable by a person, being a non resident from-

  • A person resident in India and carrying on business or profession; or
  • A nonresident having a permanent establishment in India.

Non applicability

Clause 162 (2) provides that the equalization levy shall not be charged where-

  • The nonresident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment;
  • The aggregate amount of consideration for specified service received or receivable in a previous year by nonresident from a person resident in India and carrying on business or profession, or from a non resident having a permanent establishment in India, does not exceed ₹ 1 lakh; or
  • Where the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purpose of carrying out business or profession.

Collection and recovery

Clause 163 provides for collection and recovery of equalization levy.  Clause 163 (1) provides that every person-

  • being a resident and carrying on business or profession ; or
  • a non resident having a permanent establishment in India

shall deduct the equalization levy from the amount paid or payable to a non resident in respect of the specified service at 6%, if the aggregate amount of consideration in a previous year exceeds ₹ 1 lakh.

The equalization levy made during any calendar month shall be paid by every assessee to the credit of the Central Government by the 7th of the month immediately following the said calendar month.

Any assessee who fails to deduct the levy shall, notwithstanding such failure, be liable to pay the levy to the credit of the Central Government.

Statement

Clause 164 requires the assessee to furnish the statement within the prescribed time after the end of each financial year.  The statement   shall be prepared and delivered or cause to be delivered to the Assessing officer or to any other authority or agency authorized by the Board in this behalf.  The Statement shall be in the prescribed form and verified in such manner and setting forth the particulars as may be prescribed of all specified services during such financial year.

Clause 164 (2) provides that an assessee who has not furnished the statement within the time prescribed or having furnished a statement notices any omission or wrong particular therein, may furnish a statement or a revised statement at any time before the expiry of two years from the end of the financial year in which the specified services was provided.

Clause 164 (3) provides that where any assessee fails to furnish the statement within the prescribed time, the Assessing Officer may serve a notice upon such assessee requiring him to furnish the statement in the prescribed form verified in the prescribed manner and setting forth the particulars within such time, as may be prescribed.

Processing of Statement

Clause 165 provides the procedure for processing the statement.  The procedure is dealt with as follows:

  • the equalization levy shall be computed after making the adjustment for any arithmetical error in the statement;
  • the interest, if any shall be computed on the basis of sum deductible as computed in the statement;
  • the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the amount computed  against any amount  paid by way of tax or interest;
  • an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to him; and
  • the amount of refund due to the assessee shall be granted to him.

Rectification of mistake

Clause 166 gives powers to the Assessing Officer to rectify any mistake apparent from the record any intimation issued to the assessee within one year from the end of the financial year in which the intimation sought to be amended was issued.  The Assessing officer may make an amendment to any intimation either suo motu or on any mistake brought to his notice by the assessee.  If the amendment has the effect of increasing the liability of the assessee or reducing a refund, it shall not be made unless the Assessing Officer has given a notice to the assessee of his intention so to do and has given the assessee a reasonable opportunity of being heard. The Assessing Officer shall make an order specifying the sum payable by the assessee.

Interest

Clause 167 provides for the levy interest on the assessee who fails to credit the equalization levy or any part thereof to the account of the Central Government within the period specified shall pay simple interest @1% of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed.

Penalty

Clause 168 to 170 deals with the penalty imposed under this Chapter.   Clause 168 provides  that any assessee who fails to deduct the whole or any part of the equalization levy, he is liable to pay, in addition to the levy or interest, a penalty equal to amount of equalization levy that he failed to deduct.

Any assessee who having deducted the equalization levy fails to pay such levy to the credit of the Central Government then he shall be liable to pay, in addition to the levy or interest, a penalty of ₹ 1000/- for every day during which the failure continues, so, however, that the penalty shall not exceed the amount of equalization levy that he failed to pay.

Clause 169 provides that where an assessee fails to furnish the statement within the prescribed time, he shall be liable to pay a penalty of ₹ 100/- for each day during which the failure continues.

Clause 170 provides that no penalty shall be imposable for any failure, if the assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.

No order imposing the penalty shall be made unless the assessee has been given a reasonable opportunity of being heard.

Appeal to Commissioner (Appeals)

Clause 171 provides for filing appeal before the Commissioner of Income Tax (Appeals) by the aggrieved assessee by an order imposing penalty within a period of 30 days from the date of receipt of order of the Assessing Officer.  The appeal shall be in such form and verified in such manner as may be prescribed and shall be accompanied by a fee of ₹ 1000/-.   The provisions of Sections 249 to 251 of the Income Tax Act shall apply to such appeal.  Section 249 of the Income Tax Act deals with the form of appeal and limitation.  Section 250  provides the procedure to dispose the appeal and Section 251 provides the powers of the Commissioner of Income Tax (Appeals).

Appeal before Tribunal

Clause 172 provides for filing appeal before the Tribunal by the aggrieved assessee against the order of the Commissioner (Appeals).  The Commissioner of Income Tax may direct the Assessing Officer to appeal to the Tribunal against such order, if he objects the same.   The appeal shall be filed within 60 days from the date of receipt of the order.  The appeal shall be in such form and verified in such manner and accompanying with a fee of ₹ 1000/-.  Sections 253 to 255 of the Income Tax Act shall apply to such appeal.  Section  253 deals with the appeals to the Appellate Tribunal.  Section 254 deals with the orders of the Appellate Tribunal and Section 255 deals with the procedure of the Appellate Tribunal.

Prosecution

Clause 173 of the Bill provides for launching of prosecution against a person who makes a false statement in any verification under this Chapter or any rule made there under, or delivers an account or statement, which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine.  An offence punishable under this clause shall be deemed to be non cognizable offence within the meaning of Code of Criminal Procedure.  No prosecution shall be instituted against any person except with the previous sanction of Chief Commissioner of Income Tax.

Application of certain provisions of Income Tax Act

Clause  174 of the Bill provides that the provisions of the following sections of the Income Tax Act shall so far as may be apply in relation to equalization levy, as they apply in relation to income tax:

Powers of Central Government

Clause 176 gives powers to the Central Government to make rules for carrying out the provisions of this Chapter, by notification for all or any of the following matters, namely-

  • the time within which the form and the manner in which the statement shall be delivered or caused to be delivered;
  • the form in which an appeal may be filed and the manner in which it may be verified;
  • any matter which is to be, or may be, prescribed.

Clause 177 gives powers to the Central Government to remove any difficulty arises in giving effect to the provisions of this Chapter, by order published in the Official Gazette, not inconsistent with the provisions of this Chapter.   No such order shall be made after the expiry of a period of two years from the date on which the provisions of this Chapter come into force.                                                                                                                                        

 

By: Mr. M. GOVINDARAJAN - March 8, 2016

 

Discussions to this article

 

Nice article Sir.

By: Ganeshan Kalyani
Dated: 11/05/2016

 

 
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