Income Tax

EQUALISATION LEVY

CHAPTER VIII of Finance Act 2016

EQUALISATION LEVY

 (1) This Chapter extends to the whole of India except the State of Jammu and Kashmir.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

(3) It shall apply to consideration received or receivable for specified services provided on or after the commencement of this Chapter.

  1. In this Chapter, unless the context otherwise requires,—

(a) “Appellate Tribunal” means the Appellate Tribunal constituted under section 252 of the Income-tax Act;

(b) “Assessing Officer” means the Income-tax Officer or Assistant Commissioner of Income-tax or Deputy Commissioner of Income-tax or Joint Commissioner of Income-tax or Additional Commissioner of Income-tax who is authorised by the Board to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Chapter;

(c) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963;

(d) “equalisation levy” means the tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter;

(e) “Income-tax Act” means the Income-tax Act, 1961;

(f) “online” means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network;

(g) “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;

(h) “prescribed” means prescribed by rules made under this Chapter;

(i) “specified service” means

  • 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;

(j) words and expressions used but not defined in this Chapter and defined in the Income-tax Act, or the rules made thereunder, shall have the meanings respectively assigned to them in that Act.

  1. (1) On and from the date of commencement of this Chapter, there shall be charged an equalisation levy at the rate of six per cent. of the amount of consideration for any specified service received or receivable by a person, being a non-resident from–– (i) a person resident in India and carrying on business or profession; or (ii) a non-resident having a permanent establishment in India. (2) The equalisation levy under sub-section (1) shall not be charged, where––

(a) the non-resident providing the specified service has a permanent establishment in India and the specified service is effectively connected with such permanent establishment;

(b) the aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident 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 one lakh rupees; or (c) where the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession.

  1. (1) Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India (hereafter in this Chapter referred to as assessee) shall deduct the equalisation levy from the amount paid or payable to a non-resident in respect of the specified service at the rate specified in section 165, if the aggregate amount of consideration for specified service in a previous year exceeds one lakh rupees.

(2) The equalisation levy so deducted during any calendar month in accordance with the provisions of sub-section (1) shall be paid by every assessee to the credit of the Central Government by the seventh day of the month immediately following the said calendar month.

(3) Any assessee who fails to deduct the levy in accordance with the provisions of sub-section (1) shall, notwithstanding such failure, be liable to pay the levy to the credit of the Central Government in accordance with the provisions of sub-section (2).

  1. (1) Every assessee shall, within the prescribed time after the end of each financial year, prepare and deliver or cause to be delivered to the Assessing Officer or to any other authority or agency authorised by the Board in this behalf, a statement in such form, verified in such manner and setting forth such particulars as may be prescribed, in respect of all specified services during such financial year.

(2) An assessee who has not furnished the statement within the time prescribed under sub-section (1) or having furnished a statement under sub-section (1), notices any omission or wrong particular therein, may furnish a statement or a revised statement, as the case may be, at any time before the expiry of two years from the end of the financial year in which the specified service was provided.

(3) Where any assessee fails to furnish the statement under sub-section (1) 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 such particulars, within such time, as may be prescribed.

  1. (1) Where a statement has been made under section 167 by the assessee, such statement shall be processed in the following manner, namely:––

(a) the equalisation levy shall be computed after making the adjustment for any arithmetical error in the statement;

(b) the interest, if any, shall be computed on the basis of sum deductible as computed in the statement; (c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the amount computed under clause (b) against any amount paid under sub-section (2) of section 166 or section 170 and any amount paid otherwise by way of tax or interest

(d) 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 under clause (c); and

(e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to him: Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is furnished.

(2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of such statements to expeditiously determine the tax payable by, or the refund due to, the assessee as required under that sub-section.

  1. (1) With a view to rectifying any mistake apparent from the record, the Assessing Officer may amend any intimation issued under section 168, within one year from the end of the financial year in which the intimation sought to be amended was issued.

(2) The Assessing Officer may make an amendment to any intimation under sub-section (1), either suo motu or on any mistake brought to his notice by the assessee.

(3) An amendment to any intimation, which has the effect of increasing the liability of the assessee or reducing a refund, shall not be made under this section unless the Assessing Officer has given notice to the assessee of his intention so to do and has given the assessee a reasonable opportunity of being heard.

(4) Where any such amendment to any intimation has the effect of enhancing the sum payable or reducing the refund already made, the Assessing Officer shall make an order specifying the sum payable by the assessee and the provisions of this Chapter shall apply accordingly.

  1. Every assessee, who fails to credit the equalisation levy or any part thereof as required under section 166 to the account of the Central Government within the period specified in that section, shall pay simple interest at the rate of one per cent. of such levy for every month or part of a month by which such crediting of the tax or any part thereof is delayed.
  2. Any assessee who––

(a) fails to deduct the whole or any part of the equalisation levy as required under section 166; or

(b) having deducted the equalisation levy, fails to pay such levy to the credit of the Central Government in accordance with the provisions of sub-section (2) of that section, shall be liable to pay,—

(i) in the case referred to in clause (a), in addition to paying the levy in accordance with the provisions of sub-section (3) of that section, or interest, if any, in accordance with the provisions of section 170, a penalty equal to the amount of equalisation levy that he failed to deduct; and

(ii) in the case referred to in clause (b), in addition to paying the levy in accordance with the provisions of sub-section (2) of that section and interest in accordance with the provisions of section 170, a penalty of one thousand rupees for every day during which the failure continues, so, however, that the penalty under this clause shall not exceed the amount of equalisation levy that he failed to pay.

  1. Where an assessee fails to furnish the statement within the time prescribed under sub-section (1) or sub-section (3) of section 167, he shall be liable to pay a penalty of one hundred rupees for each day during which the failure continues.

 

  1. (1) Notwithstanding anything contained in section 171 or section 172, no penalty shall be imposable for any failure referred to in the said sections, if the assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.

(2) No order imposing a penalty under this Chapter shall be made unless the assessee has been given a reasonable opportunity of being heard.

  1. (1) An assessee aggrieved by an order imposing penalty under this Chapter, may appeal to the Commissioner of Income-tax (Appeals) within a period of thirty days from the date of receipt of the order of the Assessing Officer.

(2) An appeal under sub-section (1) shall be in such form and verified in such manner as may be prescribed and shall be accompanied by a fee of one thousand rupees.

(3) Where an appeal has been filed under sub-section (1), the provisions of sections 249 to 251 of the Income-tax Act shall, as far as may be, apply to such appeal.

  1. (1) An assessee aggrieved by an order made by the Commissioner of Income-tax (Appeals) under section 174 may appeal to the Appellate Tribunal against such order.

(2) The Commissioner of Income-tax may, if he objects to any order passed by the Commissioner of Income-tax (Appeals) under section 174, direct the Assessing Officer to appeal to the Appellate Tribunal against such order.

(3) An appeal under sub-section (1) or sub-section (2) shall be filed within sixty days from the date on which the order sought to be appealed against is received by the assessee or by the Commissioner of Income-tax, as the case may be.

(4) An appeal under sub-section (1) or sub-section (2) shall be in such form and verified in such manner as may be prescribed and, in the case of an appeal filed under sub-section (1), it shall be accompanied by a fee of one thousand rupees.

(5) Where an appeal has been filed before the Appellate Tribunal under sub-section (1) or sub-section (2), the provisions of sections 253 to 255 of the Income-tax Act shall, as far as may be, apply to such appeal.

EQUALISATION LEVY RULES, 2016

(CBDT Notification No. 38/2016 dated 27th May 2016)

Effective Date 01/06/2016

 In exercise of the powers conferred by sub-section (1) and sub-section (2) of section 179 of the Finance Act, 2016 (28 of 2016), the Central Government made the rules for carrying out the provisions of Chapter VIII of the said Act relating to Equalisation levy, namely: –

 

  1. Rounding off of consideration for specified services, equalisation levy, etc. to the nearest multiple of ten rupees.

 

  1. Payment of Equalisation levy. Every assessee, who is required to deduct and pay equalisation levy, shall pay the amount of such levy to the credit of the Central Government by remitting it into the Reserve Bank of India or in any branch of the State Bank of India or of any authorised Bank accompanied by an equalisation levy challan.

 

  1. Statement of specified services. (1) The statement of specified services required to be furnished under sub-section (1) of section 167 of the Act shall be in Form No. 1, duly verified in the manner indicated therein, and may be furnished by the assessee electronically under digital signature; or electronically through electronic verification code.

 

  1. The statement in Form No.1 in respect of all the specified services chargeable to equalisation levy during any financial year shall be furnished on or before the 30th June immediately following that financial year.

 

  1. Where an assessee fails to furnish the statement within the time specified in sub-rule (2) of rule 5, the Assessing Officer may issue a notice to such person requiring him to furnish, within thirty days from the date of service of the notice, the statement in the Form prescribed in rule 5 and verified in the manner indicated therein.

 

  1. Notice of demand in Form No. 2 specifying the sum so payable. Where any sum is determined to be payable by the assessee under sub-section (1) of section 168 of the Act, the intimation under the said section shall be deemed to be a notice of demand.

 

  1. Form of appeal to Commissioner of Income-tax (Appeals) shall be made in Form No. 3 electronically under digital signature; or electronically through electronic verification code. The form of appeal, shall be verified by the person who is authorised to verify the statement of specified services under rule 5, as applicable to the assessee.

 

  1. Form of appeal to Appellate Tribunal.– An appeal under sub-section (1) or sub-section (2) of section 175 of the Act to the Appellate Tribunal shall be made in Form No.4, and where the appeal is made by the assessee, the form of appeal, the grounds of appeal and the form of verification appended thereto shall be signed by the person specified in Form No.4, as applicable to the assessee.

Notification dated 28th October, 2020 Equalisation Levy (Amendment) Rules, 2020

Short title and commencement. ─

(1) These rules may be called the Equalisation levy (Amendment) Rules,2020.

  1. In the Equalisation levy Rules, 2016 (hereinafter referred to as the said rules), in rule 2, after clause (a), the following clause shall be inserted, namely:-

‘(aa) “electronic verification code” means a code generated for the purpose of electronic verification of the person furnishing the statement of specified services as per the data structure and standards laid down by the Principal Director- General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be;’.

  1. In the said rules, in rule 3,- (a) in the heading, the words “for specified services” shall be omitted; (b) for the words “The amount of consideration, for specified services and”, the words, “The amount of consideration” shall be substituted.

 

  1. In the said rules, for rules 4 and 5, the following shall be substituted, namely:-

“4. Payment of Equalisation levy. ─ The assessee or e-commerce operator, as the case may be, who are required to deduct and pay equalisation levy, shall pay the amount of such levy, by remitting it into the Reserve Bank of India or in any branch of the State Bank of India or of any authorised Bank accompanied by an equalisation levy challan.

  1. Statement of specified services or e-commerce supply or services. ─

(1) The statement required to be furnished under sub-section (1) or sub-section (2) of section 167 of the Act shall be in Form No. 1, duly verified in the manner indicated therein, and may be furnished by the assessee or e-commerce operator, as the case may be, in the following manner, namely:- (i) electronically under digital signature; or (ii) electronically through electronic verification code.

(2) The statement in Form No. 1 required to be furnished under sub-section (1) of section 167 of the Act shall be furnished on or before the 30th day of June immediately following that financial year.

(3) The Principal Director-General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, for the purpose of ensuring secure capture and transmission of data, shall-

(i) lay down the procedure for electronic filing of Form No.1;

(ii) lay down the data structure, standards and manner of generation of electronic verification code, referred to in sub rule (2), for the purpose of verification of the person furnishing the said form;

(iii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished; and

(iv) specify the manner of furnishing the revised statement required to be furnished under sub-section (2) of section 167 of the Act.” 5. In the said rules, in rule 6,-

(a) in the heading, after the words “specified services” the words “or e-commerce supply or services” shall be inserted;

(b) for the words “Where an assessee fails”, the words, “Where an assessee or e-commerce operator, as the case may be, fails” shall be substituted.

  1. In the said rules, in rule 7, in the proviso, for the word “assessee”, the words “assessee or e-commerce operator, as the case may be,” shall be substituted;

 

  1. In the said rules, in rule 8, for sub-rules (2), (3) and (4), the following shall be substituted, namely:- “(2) The form of appeal referred to in sub-rule (1), shall be verified by the person who is authorised to verify the statement under rule 5, as applicable to the assessee or e-commerce operator, as the case may be.

(3) Any document accompanying Form No. 3 shall be furnished in the same manner in which the Form No. 3 is furnished.

(4) The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, for the purpose of ensuring secure capture and transmission of data, shall-

(i) lay down the procedure for electronic filing of Form No.3;

(ii) lay down the data structure, standards and manner of generation of electronic verification code, referred to in sub rule (2), for the purpose of verification of the person furnishing the said form; and (iii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished.”.

  1. In the said rules, in rule 9, for the word “assessee” at both the places where they occur, the words “assessee or e-commerce operator, as the case may be” shall be substituted.

No need to deduct tax at source on software imports

The Supreme Court has ruled that payments made by resident Indian end users or distributors (such as technology companies) to overseas suppliers on import of ‘shrink-wrapped’ software generally known as off-the-shelf software- is not a royalty’ payment. Thus, no withholding tax obligation arise in India against such payments.

 During assessments payments made for import of shrink-wrapped software to overseas suppliers were held assessable to tax as ‘royalty’ under section 9(1)(vi) of the Income Tax Act and Article 12 of the respective tax treaties. This classification as ‘royalty’ required tax to be deducted at source (TDS) when making payment to the overseas suppliers.

The contention of companies was that the use of software by the Indian importer was limited to making a backup copy and /or redistribution. They did not have the right to modify the shrink-wrapped software that was imported. So, the payment made to overseas supplier could only be treated as business income in the hands of the entity – instead of as ‘royalty’ – and no tax withholding obligation arose.

Clarification in respect of option under section 115BAC of the Income-tax Act, 1961

  1. Section 115BAC of the Income-tax Act, 1961 (the Act), inserted by the Finance Act, 2020 w.e.f the assessment year 2021-22, inter alia, provides that a person, being an individual or a Hindu Undivided Family having income other than income from business or profession”, may exercise option in respect of a previous year to be taxed under the said section 115BAC along with his return of income to be furnished under sub-section (1) of section 139 of the Act for each year.
  2. The concessional rate provided under section 115BAC of the Act is subject to the condition that the total income shall be computed without specified exemption or deduction, setoff of loss and additional depreciation.
  3. It is clarified that an employee, having income other than the income under the head “profit and gains of business or profession” and intending to opt for the concessional rate under section 115BAC of the Act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income, and make TDS thereon in accordance with the provisions of section 115BAC of the Act. If such intimation is not made by the employee, the employer shall make TDS without considering the provision of section 115BAC of the Act.
  4. It is also clarified that the intimation so made to the deductor shall be only for the purposes of TDS during the previous year and cannot be modified during that year.
  5. The intimation would not amount to exercising option in terms of sub-section (S) of section 115BAC of the Act and the person shall be required to do so along with the return to be furnished under sub-section (1) of section 139 of the Act for that previous year.
  6. Option at the time of filing of return of income under sub-section (1) of section 139 of the Act could be different from the intimation made by such employee to the employer for that previous year.
  7. In case of a person who has income under the head “profit and gains of business or profession” also, the option for taxation under section 115BAC of the Act once exercised for a previous year at the time of filing of return of income under sub-section (1) of section 139 of the Act cannot be changed for subsequent previous years except in certain circumstances.
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