The scope of equalization levy, which hitherto was applicable only to advertising and related services, has now been expanded by way of a sweeping amendment to cover all sorts of digital eCommerce transactions into India as well as those transactions which use Indian data.
This could potentially cover all digital business earning more than INR 2 Cr of revenues from India or using Indian data to tax them at 2%. E-commerce operators will not have recourse to favorable 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.
One can also expect legal challenges on extra-territoriality as the provisions seek to cover non-resident to non-resident transactions that use India data where OECD is still developing consensus on taxable nexus and allocation of taxing rights.
Indian Finance Bill 2020 was passed yesterday in the Parliament. In a surprising development, the scope of equalization levy has been extended to cover “Ecommerce supply or services” (including facilitation) w.e.f. 1 April 2020 is on the E-commerce operator (non-resident) and is required to deposit equalization levy so collected on a quarterly basis and also file an annual return.
The provisions relating to income on which equalization levy has been paid is exempt from income tax continue to apply to e-commerce supplies on which equalization levy has been paid unless e-commerce operator has a PE in India and services so supplied are effectively connected to such PE.
“E-commerce supply or services” has been defined to mean:
online sale of goods owned by the e-commerce operator: or
online provision of services provided by the e-commerce operator
online sale of goods or provision of services or both facilitated by the eCommerce operator: or
any combination of the above.
“E-commerce operator” has been defined to mean a non-resident who owns, operates or manages digital or e-commerce facility or platform for the online sale of goods or online provision of services or both.