Equalisation Levy : Explained

Last Updated On: March 19, 2019, 2:23 p.m.
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Introduction

EQL was introduced in the Union Budget 2016 and is included in the Chapter VIII of the Finance Act 2016. The Govt. had set up a committee on taxation of E-commerce which gave its report in February, 2016. On 27 May 2016, Equalisation Levy Rules, 2016 were notified. It was made applicable w.e.f. 1st June 2016.

EQL is popularly called ‘Google Tax’.

Why EQL Required?

Some judicial precedents that illustrates the need of EQL:

1. In the year 2011, the Mumbai Bench of the Tribunal in the case of Yahoo India (P) Ltd vs DCIT: 140 TTJ 195held the payment made by assessee to Yahoo Holdings Hong Kong Ltd ('YHHL'), for the services rendered for uploading and display of banner advertisement of the Department of Tourism of India, on its portal, was not in the nature of royalty as defined in the Indian Income tax Act. The Tribunal held the consideration received by YHHL to be in the nature of business profit and in the absence of any PE of YHHL in India, it was held to be not chargeable to tax in India.

2.Likewise, in ITO vs Pubmatic India (P) Ltd: 60 SOT 54, the Mumbai Bench of the Tribunal held remittance made to a US company towards purchase of advertisement space fell under Article 7 of India-USA DTAA and in absence of a PE of such company in India, income was not taxable in India.

As would be observed, the attempts of the Indian Revenue to bring to tax payments for online advertisers within the ambit of tax by applying the existing provisions of the Indian Income tax Act and the Double Tax Treaty, were not successful before the Tax Tribunals. A new law or levy approach was thus required to bring such payment to tax.

Objective Of  EQL:

To tax the income of digital economy engaged in providing specified services which remain untaxed by applying the existing provisions of the Indian Income tax Act and the Double Tax Treaty.

Equalisation Levy – Salient features

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