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Equalisation Levy

Equalisation Levy:

Justifying the 2 per cent equalisation levy (EL) imposed by India on the supply of services by multinational enterprises, finance minister Nirmala Sitharaman has said it is a sovereign right to tax revenues earned from operations in the country.

About the Equalisation Levy:

  • India was the one of the first countries to introduce a 6 per cent equalisation levy in 2016, but the levy was restricted to online advertisement services.
  • However, India introduced the digital tax in April 2020 for foreign companies selling goods and services online to customers in India and showing annual revenues more than INR 20 million.
  • India has expanded the scope of the equalisation levy over the last few years, to tax non-resident digital entities.
  • While the levy applied only to digital advertising services till 2019-20 at the rate of 6 percent, the government in April 2020 widened the scope to impose a 2 per cent tax on non-resident e-commerce players with a turnover of Rs 2 crore.
  • The scope was further widened in the Finance Act 2021-22 to cover e-commerce supply or service when any activity takes place online.
  • Since May 2021, this also includes any entity that systematically and continuously does business with more than 3 lakh users in India.
  • Offshore e-commerce firms that sell through an Indian arm will not have to pay.
  • This means if the goods and services sold on a foreign e-commerce platform are owned or provided by an Indian resident or Indian permanent establishment, they will not be subject to the two percent equalization levy.