Panel for Equalisation Levy of 6-8% on digital transactions

A CBDT committee on taxation of e-commerce has suggested an "Equalisation Levy" of 6-8 per cent for business-to-business deals with a view to tax digital transactions.
Based on the recommendations of the committee, which had submitted its report to the government in February, Finance Minister Arun Jaitley in his Budget proposed an Equalisation Levy of 6 per cent to tap tax on income accruing to foreign e-commerce companies from India.
The report, which was made public today, has suggested introduction of the tax based on the Base Erosion and Profit Shifting (BEPS) report which was earlier endorsed by G20 and OECD.

The committee set up by Central Board of Direct Taxes (CBDT) has suggested that Equalisation Levy between 6-8 per cent be imposed on amount paid to non-resident by an Indian resident for specified digital services. It also suggested that this Levy should not be a part of the Income-Tax Act.
The specified services would include online advertising or any services, rights or use of software for online advertising, including advertising on radio & television, designing, hosting or maintenance of websites, digital space for website, e-mails, blogs, facility for online sale of goods or services or collecting online payments.
It would also include use or right to use or download online music, online movies, online games and online software applications accessed or downloaded through internet or telecommunication networks.

Jaitley in the Budget had said that in order to tap tax on income accruing to foreign e-commerce companies from India, a person making payment to a non-resident, who does not have a permanent establishment, exceeding in aggregate Rs 1 lakh in a year, for online advertisement, will withhold tax at 6 per cent of gross amount paid, as Equalisation levy. The levy will only apply to B2B transactions.

EY Tax Partner (Media & Entertainment) Rakesh Jariwala said "it is imperative that the government not only lays down clear guidelines around the transaction covered under the levy but equally, the manner of determination as to whether EQL or income tax will apply on a transaction. Else the transaction could lead to double taxation - EQL as well as income tax".

Nangia & Co Managing Partner Rakesh Nangia said since the levy is not a tax on income, tax treaty shall not be applicable and hence tax credit cannot be claimed by the foreign recipient.
"This view is reaffirmed from the fact that the committee ruled out the option of levying withholding tax considering it would not be feasible to amen the tax treaties in this regard," Nangia said.